What Best Explains Why a Firm's Ratio of Long-Term Debt/total

question 38

Multiple Choice

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

• A)The firm pays lower interest on long-term debt than the average firm.
• B)The firm has more short-term debt than average.
• C)The firm has a high ratio of current assets/current liabilities.
• D)The firm has a high ratio of total cash flow/long term debt.

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Definitions:

Operating Activities

Activities that constitute the primary or main activities of a business, like sales, provision of services, production, etc., which are reflected in the cash flow from operating activities in the financial statements.

Net Income

The amount of money a company earns after deducting all its expenses, taxes, and costs from its total revenue.

Net Cash

The net cash position resulting from deducting cash outflows from cash inflows.

Investing Activities

Financial transactions related to the purchase and sale of long-term assets and other investments, reflecting how a company allocates its resources to generate future growth and income.