What Is a Thin Capital Structure?
A thin capital structure means a company relies heavily on debt compared to equity. This high leverage increases financial risk because fixed obligations must be met even if earnings fall.
Why Leverage Matters
Lenders and investors watch leverage ratios closely. High debt can reduce borrowing capacity and raise the cost of capital. In downturns, thin structures face greater risk of default.
How Companies Manage Thin Structures
Firms may use hedging, cash reserves, or covenants to handle debt loads. For more on financial risk and leverage, see the Corporate Finance Institute.
