You Are an Analyst Following Two Companies, Company X and Company

question 13

Multiple Choice

You are an analyst following two companies, Company X and Company Y. You have collected the following information: • The two companies have the same total assets.
• Company X has a higher total assets turnover than Company Y.
• Company X has a higher profit margin than Company Y.
• Company Y has a higher inventory turnover ratio than Company X.
• Company Y has a higher current ratio than Company X.
Which of the following statements is most correct?

• A) Company X must have a higher net income.
• B) Company X must have a higher ROE.
• C) Company Y must have a higher quick ratio.
• D) Statements a and b are correct.
• E) Statements a and c are correct.

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Definitions:

Debt-to-equity Ratio

An indicator showing the comparative levels of shareholders' equity and debt utilized in the financing of a company's assets.

Times Interest

A financial ratio that measures a company's ability to meet its interest obligations, calculated by dividing earnings before interest and taxes (EBIT) by the interest expenses.

Equity Multiplier

A financial leverage ratio that measures the portion of a company’s assets that are financed by stockholders’ equity, indicating the level of debt used to finance assets.

Current Ratio

An indicator of a company's proficiency in paying off its short-term dues using the assets it currently possesses.