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Why might it make sense for a mature, slow-growth company to have a high debt ratio?

Question:

Why might it make sense for a mature, slow-growth company to have a high debt ratio?

Debt:

Debt refers to the amount borrowed by the individual or a company for carrying the operations of a business. It is an obligation for the borrower to reimburse the amount within the period, including the interest.

Answer and Explanation:

The developed company can survive with a large debt ratio because such organizations have already captured a significant share of the market. The market standing of the company is even high based on which the lenders trust the company. The matured company ensures stable earning and regular cash flow, which attracts the investors to deal in the securities of the company. Therefore a matured company can sustain large debt proportion in the market.


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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