Firms having stable and predictable revenues can more safely undertake highly leveraged capital structures than can firms with volatile patterns of sales revenue.

Question

Quizplus · Accepted Answer

Firms with stable and predictable revenues have less risk of defaulting on their debt obligations, and therefore can more safely handle highly leveraged capital structures. This is because they can better predict and manage their cash flows, and have a greater ability to service their debts. Conversely, firms with volatile patterns of sales revenue may struggle to meet their debt obligations during periods of economic downturns or decreased demand for their products or services, and in such cases, highly leveraged capital structures can be risky.

Firms Having Stable and Predictable Revenues Can More Safely Undertake