Okay, let's think about the financing sources available to a company across its life cycle.

And if we think about introduction, the business is almost certainly gonna be financed by equity.

It'll have insufficient cash flows to support debt.

However, as the business grows, its sales will grow and therefore its cash flows will grow and it'll start to have more access to debt financing.

At the same time, it will seek to attract more equity financing and may consider an initial public offering.

An IPO once it reaches maturity, strong, stable cash flows will help it to support lots of debt financing.

And then if the business does reach decline, then its debt capacity will reduce.

So, for example, in order to look at debt capacity, might calculate leverage debt divided by ebitda.

A business with reducing sales and reducing profits will have a falling EBITDA figure and therefore have less debt financing available to it.