What impact does having a lot of debts on a company’s balance sheet have on future operating needs?

Answer 1

It's no different than if you personally owed a lot of money...

Debt liability implies service cost - payments and interest. That subtracts from profits and from purchasing any additional capital equipment. it also reduces funds available for operating - the amount of stock for sale you can have on hand, say, if you're a store. It also limits flexibility if sudden ("extraordinary") expenses come up.

Instead of putting away money for future capital needs, it will be spent paying down debt. Money spent on interest is not producing anything.

The only exception would be if the borrowed money bought something that helped make a lot more money for the company.

I.e. your pizza parlour bought a car, but used it deliver pizza cheaper than hiring someone with their own car - makes the car payments back and then some extra profit - money well spent, worthwhile debt. However, if the pizza place had been able to buy the car with cash, they would be making profits instead of car payments, and would be that much further ahead when it's time for a new car.

Debt-rating by the banks or credit agencies also determines the "credit-worthiness", or how risky banks think it is to lend you money. The more debt, the more risk you might not pay it back, so the more interest they will charge to cover that.

Even if the company is trying to sell extra shares - anyone who might consider buying shares would also wonder how that debt would reduce profits and dividend payments - so the share price would be lower.