Analysis of a commercial company’s debt policy

Every business needs to invest. Investments require financing, which can be either internal or external. Internal financing is called ＂self-financing＂, meaning that the company finances its investments with its own funds, notably reserves, retained earnings, subsidies and provisions.However, if the company’s own funds are insufficient to finance its investments, it must resort to foreign (external) financing. Before resorting to these foreign funds, the manager must analyze the company’s debt policy, which is defined as the set of decisions that the entity (company) puts in place to define a sound financial structure with external financing known as ＂indebtedness＂.It enables the company to understand its financing strategy, taking into account criteria specific to the company (level of equity, existing level of debt), as well as external parameters such as interest rates and economic conditions, in order to assess the impact of this debt on the company’s equity.