Tickers in this Article: FRX, ERTS, EBAY, GME
With millions of consumers, businesses and the economy swimming in pools of debt vis-a-vis various financial obligations, a debt-free balance is not something to take for granted. Just like a household, large levels of indebtedness create problems and force one to make decisions not in the best interest of those affected. In the case of a business, those most affected are shareholders.

Happy To Be Debt Free
Conversely, when a person or business is debt free, they are as Warren Buffett likes to say not dependant "on the kindness of strangers". When you have no debt, the environment is a lot less stressful when times are bad. Simply, you can do more with less. A business that loses 25% of its sales during weak business cycles won't get crushed as badly as a company that has an interest expense line on its income statement. Of course during sunny days, leverage amplifies profit. A prudent investor, however, should always concentrate on avoiding permanent losses of capital.

Forest Labs (NYSE: FRX) is an attractive pharmaceutical company with a pristine balance sheet. While a legitimate concern looms on the horizon as its blockbuster drug Lexapro goes off patent in 2012, Forest has cash and a pipeline of new drugs to help it weather the storm. The market cap is $8.4 billion with over $3 billion in cash.

eBay (Nasdaq: EBAY) is another debt-free company that many seem to have forgotten. Of course, less attention means a greater likelihood that the shares will be undervalued. eBay is a $27 billion company with over $4.5 billion in cash. Its business of allowing sellers a huge marketplace to monetize their goods and services and enabling buyers to buy used and new items at below retail looks like a very compelling business in this economy. (For more, see Breaking Down The Balance Sheet.)

Not So Fast
Clearly, being debt free is very attractive for a business. But a debt-free balance sheet is no guarantee of value creation. Video game maker Electronic Arts (Nasdaq: ERTS) has a pristine balance sheet. Shares trade for $15, and the company has over $6 per share in cash and no debt. Clearly, if the stock price were to continue falling, the story would change. But despite the company's fantastic titles, it's tough selling $60 video games in today's environment.

Even more so, most active video gamers usually are done with a game in several weeks when they have beaten it. That makes the business of selling new games very tough. Even worse, the success of video game retailers like GameStop (NYSE: GME), which has a thriving business of letting consumers trade in and buy used video games for a fraction of the price, hurts the sales of new games. That's in addition to video game rentals and places like eBay where video games are bought and sold for much less.

Sunshine After The Rain
Having cash and no debt looks boring until you need it most. Then it becomes an asset that can mean the difference between surviving or being trampled. (For related reading, see Testing Balance Sheet Strength.)

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