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Tuesday

The King Of Good Times- Part II


So what can we learn from the case of Kingfisher airlines? I guess a lot. Let me quote Charles Dickens below:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Well Mr. Dickens in his classical style tells us that it is important to live within our means and if you are going to live outside of your means it will lead to misery. So does that mean that debt is a really bad thing? Actually far from it debt plays a very important role in our life, one need to remember that there are a lot of good reasons one can take debt for e.g. buying a house, pursuing higher education, starting a new factory etc. but in all these cases one has to be very careful to not to take so much debt that one will drown in interest payment and any negative impact on ones income and cash flow leads one vulnerable and clueless as to what to do.
So the real challenge comes when one takes more debt than one can service or most of the income is going in servicing the debt. This means that even a minor fluctuation in the one’s income or expenditure will upset the apple cart, and that my friends is the challenge with debt. It is like playing with fire but if it goes out of hand it can burn down your hand. This is what is happening in case of Kingfisher, most of the money that the company is earning is going in paying the debt (or is actually suppose to do the same) and just crumbs are left to run the business. And whenever such a situation arrives nobody is willing to give you more debt unless you are a lender who has his skin too deep in the equation and is willing to take one more debt. But let us not forget that this is possible if you are a big borrower then only your lenders are willing to lend you further hoping that they will be able to recover some money out of you once you are solvent again. But if you are retail customers the banks will be sending their Goondas to your home if you do not return the banks money.
Remember the old saying: If you owe the bank a 10,000 RS and can not pay you are in trouble, but if you own the bank millions of dollars and cannot pay then the bank is in trouble. J

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