There are several industries with low percentages of debt financing. Take a look and identify some...

There are several industries with low percentages of debt financing. Take a look and identify some with a low percentage of debt financing and do the same with firms that have a high percentage of debt financing (the average according to the data in the link is about 42 percent).

Do not use the banking financial services industries.

Based on the types of firms that use a small amount of debt and those that use higher amounts of debt, what can you conclude?
What is it about the firms that use low amounts of debt?
More debt would lower their cost of capital so what is holding these firms back from taking on more debt?

You need to think a little. Do not simply say the firms with low debt are all in industry X or industries similar to X; that is obvious. What is the economic intuition? What is the story?

Solutions

Expert Solution

Answer:

Examples of some of the industries with low debt financing are as follow

1. Energy 2. Technology 3. Healthcare 4. Retail

Examples of some of the industries with high debt financing are as follow

1 Basic materials. 2 Capital goods.

The industry with more long term capital requirement or the capital intensive industries tend to have more debt in thier capital structure because of the huge tangible fixed asset and a quite established or certain cash flows The industries like technology attract more equity and they find difficult to raise debt because most of their assets are intangible and also the cashflow it generates is quite unpredictable.

The more debt in capital structure, the more it risks of being unable to meet its financial obligations to loan providers. The high leverage makes the firm more susceptible to a decrease in profitability a result of high fixed interest cost, making it highly nsky for bankruptcy.

**Please Do Like * Thank You**

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Some people talk about the use of debt as a source of financing as if it...

Some people talk about the use of debt as a source of financing as if it were evil and should be avoided at all costs. Under what conditions does it make sense for a company to use debt capital (in lieu of Equity capital)? Under what conditions does it not make sense to use Debt capital for a business?

Some people talk about the use of Debt as a source of financing as if it...

Some people talk about the use of Debt as a source of financing as if it were evil and should be avoided at all costs. Does this make sense to you? Under what conditions does it make sense for a business to use Debt Capital (in lieu of Equity Capital)? What are the implications for a company's Weighted Average Cost of Capital and Minimum Required Free Cash Flow Return on Assets if the company only uses Equity Capital to finance...

Globalisation is a complex and controversial issue. Take a look at some of the main benefits...

Globalisation is a complex and controversial issue. Take a look at some of the main benefits and costs associated with the greater globalisation of the world economy ; review the benefits and outline a viable and workable solution to the unintended consequences of globalization.

Identify some actions to take to achieve financial goals.

In 200 words or more: Differentiate between debt and equity financing? What are some of the...

In 200 words or more: Differentiate between debt and equity financing? What are some of the various sources of debt and equity financing?

There are several factors to consider before a company uses debt financing. Discuss 3 main determinants...

There are several factors to consider before a company uses debt financing. Discuss 3 main determinants of borrowing, other than tax shield（500 word)

1. Identify a monopoly industry (a) Look around you at industries/product that you see in the...

1. Identify a monopoly industry (a) Look around you at industries/product that you see in the marketplace and identify at least one that you think is a monopoly. (Do NOT use a public utility or other natural monopoly) Do you think that, as suggested in the book, prices are higher and output lower with a monopolist than with a highly competitive firm? (b) Can you think of instances in which a monopoly has been exposed or opened up to more...

Identify some industries where the business demand is seasonal and predictable. A few industries where the...

Identify some industries where the business demand is seasonal and predictable. A few industries where the business demand is seasonal and where it is predictable would be When do past ratios fail to provide an estimate of manpower requirements? What can be done to forecast manpower? A large automobile company has seen an unprecedentedly high employee turnover in the last 6 months. How can the company assess and reverse this trend? Discuss the costs of reducing headcount. How can we...

Differentiate between deficit and debt, identify some concerns surrounding deficit and debt in popular media at...

Differentiate between deficit and debt, identify some concerns surrounding deficit and debt in popular media at the national level. Discuss if these particular concerns are or are not the major issues about which we should worry. Many economists believe that deficit spending will reduce the national income in the long run. Yet, popular fiscal policy theory argues that deficit spending is what should be used to reduce the impact of a recession or business slowdown in the short run. Are...

Identify some current governmental policies and popular ideologies. Then examine the media to look for traces...

Identify some current governmental policies and popular ideologies. Then examine the media to look for traces of Marx's claim that economic substructure controls the social superstructure.

Subjects