Question

aggregation of equity enables Google to utilize debt sporadically. Having low debt enables Google to be adaptable with their projects and perhaps go for mor risks, which is in their segment is needed to keep up with competitors and this could be the reason they keep on utilizing this low-debt capital structure. What you think about the statement? do you agree with statement? provide reasons?

Answer 1

Yes I agree with this statement and the reasons are mentioned below.

Sustainable competitive advantage no longer arises exclusively from position, scale, and first-order capabilities in producing or delivering an offering. All those are essentially static. So where does it come from? Increasingly, managers are finding that it stems from the “second-order” organizational capabilities that foster rapid adaptation. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things.

Lenders expect cash flows generated by the project to be sufficient to pay all expenses including debt service. More equity and thus a lower debt-to-equity ratio lowers the debt service, which reduces the risk of default.

Being responsible with debt financing can help you boost the credit worthiness of your business. As the business credit score increases, so business credit will offers. Having access to low debt financing will provide better experience to compete with other improved companies in future.

And in otherhand the disadvantages of high debt project is more costly leveraged finance products, such as leveraged loans and high yield bonds, pay higher interest rates to compensate investors for taking on more risk.