easy · Corporate Credit Analysis cca-core
Two borrowers have identical leverage. Borrower A has stable subscription revenue; Borrower B sells a highly cyclical commodity.
All else equal, which borrower normally has the lower business risk?
- They must have identical risk because leverage is identical
- Borrower B, because cyclicality guarantees higher cash flow
- Borrower A, because its cash flow is more predictable
- Neither, because revenue stability is irrelevant to credit
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