Firms in stable industries are advised to keep debt levels very low so that shareholders, rather than creditors, receive the benefits of steady cash flows.
Firms in a stable industry are more apt to use financial leverage (greater proportionate debt) to amplify their earnings per common share.

Question

Quizplus · Accepted Answer

The first statement is true, as it is generally advised for firms in stable industries to keep debt levels low. However, the second statement is false, as stable firms are typically less likely to use financial leverage and subject themselves to the risks of debt.

Firms in Stable Industries Are Advised to Keep Debt Levels