Firms should borrow a lot to finance their investment schedules, because interest payable on borrowings is tax deductible. ... When a firm's investment schedule collapses by failing to generate adequate cash to make compulsory interest payments, shareholders may be forced to suffer the costs and delays of liquidation.
They use the funds to generate enough profits to more than cover the cost of borrowing. Taking out credit, whether it's a business loan, invoice finance or an overdraft, allows them to invest in more sales, creating more profit.
