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The Warren Buffett Philosophy of Investment: How a Combination of Value Investing and Smart Acquisitions Drives Extraordinary Success by Elena Chirkova

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The Use of Debt by Berkshire Hathaway

Buffett’s Crusade Against High Leverage

Debt now became something to be refinanced rather than repaid.

—WARREN BUFFETT [BUFFETT, 1977–2013, 1989]

The basics of finance teach us that debt is a cheaper financing instrument than shareholder capital. The use of debt raises the return on stockholders’ equity. On the other hand, as the level of leverage rises, the likelihood of bankruptcy grows, since a smaller fall in earnings may threaten the stability of interest payments, which require an ever greater proportion of the cash flow. Borrowing becomes more expensive to compensate for the increased risk of distress. ...

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