Essential InSights

Core Topics for the Everyday Investor

Definitions: Debt

Definitions: Debt

Generally debt is any monies owed. it is broadly defined as “Any negative on your balance sheet.” But we think there are key distinctions in the way debt is owed. This causes us to divide debt into two definitions, erosive and accretive.

Erosive Debt – is debt that over the long term does not create a profitable asset on a persons balance sheet. This include any time the debt service outpaces inbound cash flow.

Accretive Debt –  is debt that the long term capital gains and cash flow of an assets outpaces the debt service required to purchase said asset.

Breakeven – this is the tipping point when debt changes from being erosive to accretive.

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