Which of the Following Is an Accurate Statement Regarding a Company's

question 60

Multiple Choice

Which of the following is an accurate statement regarding a company's ability to meet its long-term debt obligations?

• A) If the debt-to-equity ratio is too high, it may indicate that the company has used up its borrowing capacity.
• B) If the debt-to-equity ratio is too high, it may mean that available leverage is not being used to the owners' benefit.
• C) The times interest earned ratio indicates if a company can make its principal and interest payments.
• D) The key ratios that are used to measure a long-term solvency are debt to equity, return on assets, and times interest earned.

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Definitions:

Appreciation

The increase in the value of an asset over time, which can affect investments, real estate, and other properties due to a variety of factors such as demand and inflation.

Default Risk

The risk that a borrower will not make the required payments on their debt obligations.

U.S. Treasury Bonds

Long-term government debt securities issued by the United States Department of the Treasury with maturity periods over 20 years, offering a fixed interest rate.

Coupon Rate

The coupon rate is the annual interest payment made to bondholders, expressed as a percentage of the bond's face value.