Which of the Following Statements Is Correct

question 70

Multiple Choice

Which of the following statements is correct?

• A) Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry.
• B) Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.
• C) Drug companies (prescription, not illegal!) generally have high debt-to-equity ratios because their earnings are very stable and, thus, they can cover the high interest costs associated with high debt levels.
• D) Wide variations in capital structures exist both between industries and among individual firms within given industries. These differences are caused by differing business risks and also managerial attitudes.

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Definitions:

Financial Statements

Papers detailing a business's financial status, comprising the income statement, balance sheet, and statement of cash flows.

Net Income

The company's resulting profit when all deductions, including expenses and taxes, are made from the total income.

Classified Balance Sheet

A financial statement that organizes assets, liabilities, and equity into subcategories for detailed understanding.

Unclassified Balance Sheet

A balance sheet that presents assets and liabilities in a lump sum, without dividing them into classifications or categories.