Debt isn't always a bad thing. Sure, too many Americans have gone crazy with credit cards and home equity loans, severely endangering their financial futures. But the debts that put us through college or help us buy a home can be far more useful. Similarly, companies that go into debt aren't always in bad shape. Their well-being depends largely on whether they can afford the debt they've piled up.

Many investors seeking compelling companies often shun those carrying debt. Look at IBM (NYSE:IBM). As of the end of September, it had $20.6 billion in long-term debt and almost $5 billion in short-term debt, against just $18.4 billion in shareholder equity, for a long-term debt-to-equity ratio of 1.12. That's enough to drive many cautious investors away.

Like IBM, these companies also sport debt-to-equity ratios greater than 1 -- but they've nonetheless earned top ratings from our Motley Fool CAPS community:

Company

CAPS rating (out of 5)

LT Debt-to-equity

International Game Technology (NYSE:IGT)

****

2.24

Deere (NYSE:DE)

****

2.25

Lockheed Martin (NYSE:LMT)

****

1.13

GlaxoSmithKline (NYSE:GSK)

*****

1.62

Colgate-Palmolive (NYSE:CL)

****

1.04

DuPont (NYSE:DD)

****

1.02

Data: Motley Fool CAPS.

Why the love from CAPS, given their high debt? For starters, you need to understand that all debt is not alike.

The good, the bad, and the borrowed
Like many companies, IBM details its debt obligations in its annual report. Among other factoids I unearthed:

  • Its short-term debt at the end of December 2008 bore weighted-average interest rates of 3.1% (for commercial paper) and 4.5% (for short-term loans).
  • Its long-term fixed-rate debt averaged 6.16%, while its floating-rate debt averaged 3.35%.

OK, so IBM's not amassing insanely high interest on its debts. That's a good start. Next question: How easily can the company repay its debt? Its third-quarter results give us the answers:

  • The company earned $3.2 billion in net income, up 14% from last year.
    Free cash flow was $3.4 billion.
  • The company had a cash balance of $11.5 billion.
  • The interest on IBM's debt totaled $512 million over the past 12 months.

In short, IBM is making enough cash each year to easily cover the interest on its debt and pay down the principal. And even if it generates less cash in the future, it's got a hefty stockpile stashed away to make up for any shortfall.

Yes, you should be wary of debt-laden companies … but only if a closer look reveals that they can't pay back what they owe. When deployed effectively -- to buy back shares at a steep discount, or to invest in projects that will expand and improve the business, among other examples -- debt can genuinely help companies and their investors alike.

Longtime Fool contributor Selena Maranjian owns shares of International Game Technology. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.