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

Question

Quizplus · Accepted Answer

Firms with stable and predictable revenues are better able to forecast their future cash flows, which makes it easier to service their debt obligations. They are also able to generate consistent earnings, which reduces the risk of defaulting on their debt. On the other hand, firms with volatile patterns of sales revenue are more likely to experience financial distress and default on their debt obligations, making it more difficult for them to employ highly leveraged capital structures.

Firms Having Stable and Predictable Revenues Can More Safely Employ