underleveraged

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Underleveraged

Describing a company with too little debt. While it sounds strange, a company may be underleveraged because interest on bonds are usually tax deductible for the issuing company; thus, a bond issue can create higher earnings per share for stockholders. There is no metric for determining when a company is underleveraged and investors decide on it based on their personal perceptions.

underleveraged

Of, relating to, or being a firm that has insufficient debt in its capital structure. Because bond interest is deductible for tax purposes and is generally fixed in amount for a long period of time, some use of debt can often result in greater earnings per share for stockholders. Determining whether a company is underleveraged is usually a matter of opinion.