Reserve borrowing capacity
Reserve borrowing capacity is a capacity that exists when a firm uses less debt under “normal” conditions than called for by the trade-off theory. This allows the firm some flexibility to use debt in the future when additional capital is needed.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Reserve borrowing capacity. Exists when a firm uses less debt under “normal” conditions than called for by the trade-off theory. This allows the firm some flexibility to use debt in the future when additional capital is needed.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
