A Less-Established Company, or a Company with a High Debt

question 153

Multiple Choice

A less-established company, or a company with a high debt to equity ratio, would be considered a riskier investment to the lender. Which of the following principles attests to this axiom?

• A) Direct relationship principle
• B) Compensating balance concept
• C) Risk/return trade-off
• D) Cost-benefit analysis

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Definitions:

Average Inventory

The mean amount of inventory held by a company over a specified period, indicating how much stock is maintained on hand.

Total Assets

The sum of all current and non-current assets owned by a company, which represents the total resources that a company can utilize to generate revenue.

Breakeven Analysis

The performance of what-if calculations under different revenue and cost conditions.

Gantt Charts

Visual project management tools that display the duration of tasks against the progression of time, helping track project schedules and deadlines.