Perspective
Sep. 26, 2012
Getting 'real' about debt and equity as factors in law firm financial stability
The critical problem in firms is not undercapitalization, whether sourced in equity or debt. It is overdistribution. By Ed Reeser
Notwithstanding the absence of bank debt, a large law firm can still collapse under a structure of extreme financial leverage. The message "We have no debt" is not the same as "We have no financial risk," though that is how the message is normally received, and probably meant to be received.
The debt/equity entries on the right side of the balance sheet match up to the assets on the left side. Understanding how those sim...
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