i) Leverage level:
- A company that is highly geared may not be able to access more debt.
- Such a company will be forced to rely on other sources of finance.
ii) Company policy may determine the level of financing the company uses e.g. a company may
have a policy of relying on internal finance instead of external sources of finance
iii) Industry norm:
- The industry in which the firm operates can also affect the type of finance sought by a
company e.g. agricultural firms are likely to have a low gearing due to high business risk.
iv) Nature of the assets of the firm:
- E.g. a firm with valuable assets such as land and buildings can use these assets as collateral or
security for new debt capital.
v) Cost of capital:
- The lower the cost of capital the higher the amount of that capital component in the financial
structure.
Kavungya answered the question on March 30, 2022 at 08:32
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