In practice, future revenues are not fully predictable, so that a 'rule of thumb' is needed in order to implement this approach; for example, the (say) exporter might borrow enough to hedge three years' revenue. He will also be subject to restrictions arising out of balance sheet ratios (e.g. the debt- equity ratio).

Question

Quizplus · Accepted Answer

Future revenues are uncertain, and companies often use rules of thumb to manage financial risks, such as borrowing to hedge expected revenues. Additionally, financial decisions are constrained by balance sheet ratios like the debt-equity ratio.

In Practice, Future Revenues Are Not Fully Predictable, So That