Scenario 8-2 -In Scenario 8-2, After Analyzing the Debt Ratio, You Concluded

question 24

Multiple Choice

Scenario 8-2. Denny's Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.
$$\begin{array} { l l l l } &\text { Denny's Diner } & \text { Industry } & \\\text { Current Ratio }& 1.51 & 1.62 \\\text { Average Collection Period } & 2.50 & 5.00 \\\text { Inventory Turnover } & 80 & 75 \\\text { Debt Ratio } &43 \% & 52 \% \\\text { Net Profit Margin } & 10.2 & 8.3 \end{array}$$
-In Scenario 8-2, after analyzing the debt ratio, you concluded that ______.

• A) Denny has a problem because the number is so low
• B) Denny has a higher risk factor than the industry
• C) Denny has financed 43 percent of the assets with borrowed funds
• D) Denny needs to be concerned about this ratio and increase it in the near future

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Definitions:

Population Mean

The average value of all elements in a population.

Population Values

The actual numerical values representing a characteristic of every individual member of a population.

Confidence Level

A measure indicating the probability that a given range includes the true value of an estimated parameter.

Confidence Interval

A confidence interval is a range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter, with a specified level of confidence.