Why do public utility companies usually have capital structures that are different from those of retail firms?

Jump to Solution
Category:

Why do public utility companies usually have capital structures that are different from those of retail firms?

0
0

Why do public utility companies usually have capital structures that are different from those of retail firms?

Explanation & AnswerSolution by a verified expert

Explanation

The public utilities are the big firms that have stable sales, profits and more fixed assets. Therefore, public utility focuses on long-term debts and uses fixed assets as collateral to borrow funds from the public. They also have less retained earnings as public utilities have a high dividend payout ratio. However, retail firms are the small firms that depend largely on their retained earnings as they have less access to the capital market. Thus, they both have a different capital structure.

Verified Answer

The capital structure of public utility and other retail firms differ as public utility companies have more fixed assets and can issue new funds by keeping fixed assets as collateral whereas retail firms have a small business and rely majorly on their earnings due to lower access to public funds.

Purchase this answer to view it. $5
Login/Sign up for free, load your wallet instantly using PayPal or cards and purchase this solution to view it.

Looking for the solution to this or another homework question?

If you need essay writing assistance or homework solutions, log in or sign up for a free account and ask our writers any homework question.