Some other important considerations because there is

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Unformatted text preview: rtant considerations. Some of the more important additional factors involved in capital structure decisions are summarized in Table 12.16. 542 PART 4 TABLE 12.16 Long-Term Financial Decisions Important Factors to Consider in Making Capital Structure Decisions Concern Factor Description Business risk Revenue stability Firms that have stable and predictable revenues can more safely undertake highly leveraged capital structures than can firms with volatile patterns of sales revenue. Firms with growing sales tend to benefit from added debt because they can reap the positive benefits of financial leverage, which magnifies the effect of these increases. Cash flow When considering a new capital structure, the firm must focus on its ability to generate the cash flows necessary to meet obligations. Cash forecasts reflecting an ability to service debts (and preferred stock) must support any shift in capital structure. Contractual obligations A firm may be contractually constrained with respect to the type of f...
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