Please read this statement and answer the practice questions illustrated below:
Smaller companies treat short-term interest-bearing debt as long-term debt and they also include it in the capital structure to estimate the overall cost of capital of the company."
Q1. Why do you think small companies treat short term debt this way?
Q2. Do you think this philosophy is based on gross income, cash flow, or some other factor? I would tend to think this is more of a cash flow issue. All things being relative, a short term, interest bearing debt experienced by a small company could certainly have the same, or more significant effect, than a long term debt on a large company.
200 to 300 words