facebookWhy does the debt-to-equity ratio vary from industry to industry? - Seedly

Advertisement

Anonymous

24 Apr 2019

βˆ™

General Investing

Why does the debt-to-equity ratio vary from industry to industry?

Discussion (2)

What are your thoughts?

Learn how to style your text

Hello!

The main reasons include different capital intensity levels between industries and whether the nature of the business makes carrying a high level of debt relatively easier to manage.

Capital-intensive industries, such as oil, gas or telecommunications, require significant financial resources and large amounts of money to produce goods or services.

If a company's performance is not subjected to fluctuation accordingly to the economy, it tends to be able to carry larger amounts of debt at a lower risk. For instance, industries that have a stable demand for their goods and services such as utilities, manufacturing tend to have higher debt-to-equity ratios.

Ang Yee Gary

24 Apr 2019

Medicine at National University Of Singapore

As what Prof Damodaran said how much you borrow and in what currency depends on the nature of the business you are in.

If you are a stable business then you can borrow money

If you expect cashflow to be in the future then your debt should be long term

If you are not profitable then there is no reason to borrow money or worse borrow short term debt

Write your thoughts

Advertisement