“Each company selected should be large, prominent, and conservatively financed. Indefinite as these adjectives must be, their general sense is clear.”
Companies are essentially a collection of assets, such as factories, equipment or cash in the bank, deployed in the pursuit of a common goal (either social, financial or a combination of both). How those assets are financed (such as through short-term credit, longer-term loans or shareholder equity) can have a dramatic effect on both the risks and returns that a company and its investors can expect to see.
As an example of how risks and returns are affected by a company’s funding arrangements, imagine a company that borrows £1m at an interest rate ...