Lu Lu's Catering Has a Debt Ratio Equal to

question 200

Multiple Choice

Lu Lu's Catering has a debt ratio equal to .3 and its competitor,Able's Bakery,has a debt ratio equal to .7.Determine the statement below that is correct.

• A)Able's Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu's.
• B)Able's Bakery's financial leverage is less than Lu Lu's.
• C)Able's Bakery's financial leverage is greater than Lu Lu's.
• D)Lu Lu's has a higher risk from its financial leverage.
• E)Higher financial leverage involves lower risk.

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Definitions:

Marketable Securities

Financial instruments that can be easily converted into cash, typically with high liquidity and short maturity periods.

Owners' Equity

The total assets of a business minus its total liabilities, representing the ownership interest of shareholders.

Computer Software

Consists of programs, procedures, and routines associated with the operation of a computer system.

Tangible Assets

Physical and material assets that have value, such as machinery, buildings, and inventory, which can be seen, touched, and quantified.