Discuss readons why companies in the utility industry often have high amounts of debt and companies...

Discuss readons why companies in the utility industry often have high amounts of debt and companies in the sidtware industry often have low debt?

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Companies in software industry will be having a lower debt than the companies in utility industry because companies in utility industry are responsible for a lot of public expenditure and these are the company which will be exposed to electricity, dams,water, natural gas and they will be having a lot of large amount of capital projects so there would be a larger amount of debt involved in These capital projects and they will be having payment of those debt at the longer-term so there would be a higher amount of debt capital in their overall books of accounts.

These utility companies also do not have the privilege of having excessive cash in their books of accounts so they will be generally using the debt financing as their source of capital

Software companies on the other hand will be having lower debt because they are having a higher amount of retained earning in overall books of accounts and they can fund many of their projects by their own excessive reserve so they have the privilege of having the excessive reserves and they only borrow for the shorter period of time because they will be exposing themselves into the projects which does not required capital incentive instruments so they will be mostly dealing with digitalised services and use of cash will be at the higher end.

So it can be summarised that companies in the utility sector will be having higher debt than the companies in the software industries.

jeff jeffy answered 1 year ago

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