Why don't companies use retained earnings available in a balance?
Companies have can either choose to finance their debt or equity, and retained earnings being added on to the component called Other Equity which is a part of shareholders funds or equity. The companies do not choose to pay off their debt using the cash in Retained Earning, since debt gives the effect of a tax shield by reducing the tax liability. In addition, the cost of equity is far higher than cost of debt and lot of companies prefer to keep an optical capital structure, such that the amount of debt does not exceed the ability to pay interest. Despite there are some exceptionally successful companies all over the world that operate of zero/very low debt and keep huge cash piles in their balance sheet, like Google, Infosys Limited, Tata Consultancy Services (company) and many others. When Is Debt Good? Thanks for reading