The Great Lakes Dredge: Navigating Debt and Risk in Business

Debt is a double-edged sword for businesses. On one hand, it can be a valuable tool for companies looking to invest in growth opportunities at high rates of return. However, on the other hand, debt can also pose significant risks to a company's financial health. In this article, we'll explore how Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) uses debt and examine the risks associated with it.

One way that companies use debt is to shore up their balance sheets when they're facing financial difficulties. This can involve issuing shares at discounted prices, which permanently dilutes the value of shareholders' stakes in the company. While this may be a necessary evil for some businesses, it's a costly and risky strategy that can harm investors.

Another way that debt can pose risks is through its potential to create new problems down the line. When a business takes on debt, it's only a matter of time before it becomes difficult to pay off. This can happen if the company's revenue doesn't grow as quickly as expected or if interest rates rise, making it more expensive for the company to service its debt.

Great Lakes Dredge & Dock Corporation is no exception. As a publicly-traded company, GLDD relies on debt to fund its operations and growth initiatives. However, this also means that investors should be aware of the risks associated with the company's debt levels.

One way to assess these risks is by examining a company's balance sheet. A balanced balance sheet shows a company has sufficient assets to cover its liabilities, while an unbalanced one can indicate significant risk. By looking at a company's debt-to-equity ratio and other financial metrics, investors can gain a better understanding of the potential risks associated with a company's debt.

In his book 'The Most Important Thing,' Howard Marks, co-founder of Oaktree Capital Management, emphasizes the importance of focusing on the potential for permanent loss rather than short-term volatility. This means that investors should be more concerned about the possibility of a company going bankrupt or losing significant value in the long term, rather than experiencing temporary fluctuations in its stock price.

In conclusion, debt can be a useful tool for businesses looking to invest in growth opportunities, but it also poses significant risks. By examining a company's balance sheet and financial metrics, investors can gain a better understanding of these risks and make more informed decisions about their investments.

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