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Even though investors may view the aspect of no-long-term debt as not beneficial, for a company like Netflix, short-term debt gives the positive public perceptions of its financial health. In reviewing the growth that the company has witnessed since 1999, Netflix has been able to carry out less leveraging. This has made it possible for the company to get funds from investors. Besides, no-long-term debt does not distract a company’s management, thus focusing on business operations.
At the same time, companies with no long-term debt find it easy to settle debts during financial recessions or meltdowns, as there are conservations in operational cash flow, thus growing the companies. Businesses with no long-term debt build their credit bases and increase their likelihood of securing extra debt financing.
A short-term debt strategy is not useful in implementing projects or business ideas that require long-term capital needs. Although companies with no long-term debt enjoy more buying power and lower monthly payments, the financial aspect attracts more interest from two fronts. For instance, a low-interest rate with a long payment period increases the interest expense of the debt, and a high-interest rate with a short duration still results in high expenses. No long-term debt implies reductions in inequity in the asset, as increasing the equity under long-term engagements to own an asset, free and clear, becomes extremely difficult.
Netflix, on its part, has maintained a no long-term debt strategy as it has enabled it to minimize external expenses and to commit funds on paying debts for along period. Additionally, the company contends that negotiations for short-term debts are relatively easier than for long-term debts. The company has relied on the idea of quick liquidity since its 2002 initial public offer in order to focus on profit maximization.
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