Asked by Araceli Zambrano on May 16, 2024
Verified
Large amounts of high interest debt on a company's balance sheet signal an ability to take advantage of profitable investment opportunities when they arise because the borrowed funds are available for use by management.
High Interest Debt
Debt that carries a particularly high interest rate, often significantly increasing the cost of borrowing.
Balance Sheet
A document that presents a summary of a company's financial assets, debts, and shareholders' equity at a certain point in time.
Profitable Investment
An investment that generates a financial gain or profit, exceeding the initial cost of the investment over time.
- Evaluate the benchmarks of financial flexibility and liquidity, observing their contribution to evidencing an organization's proficiency in meeting financial responsibilities and embracing investment opportunities.
Verified Answer
BM
Barry McKinleyMay 17, 2024
Final Answer :
False
Explanation :
Large amounts of high interest debt on a company's balance sheet can actually signal financial risk and limit a company's ability to take advantage of investment opportunities. This is because a significant portion of the company's cash flow will be required to service the debt, leaving less funds available for other uses such as investments or emergencies.
Learning Objectives
- Evaluate the benchmarks of financial flexibility and liquidity, observing their contribution to evidencing an organization's proficiency in meeting financial responsibilities and embracing investment opportunities.