Suppose You Are Analyzing Two Firms in the Same Industry

question 24

True/False

Suppose you are analyzing two firms in the same industry.Firm A has a profit margin of 10% versus a profit margin of 8% for Firm B.Firm A's total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)] is 70% versus one of 20% for Firm B.Based only on these two facts,you cannot reach a conclusion as to which firm is better managed,because the difference in debt,not better management,could be the cause of Firm A's higher profit margin.

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Definitions:

Organizational Pressure

The internal or external forces that influence the behaviors and decisions of individuals within a company.

Internal Source

Originating from within an organization or individual, as opposed to coming from external influences.

Workplace Diversity

The inclusion of a variety of people in a workplace, encompassing differences in race, ethnicity, gender, age, religion, ability, and sexual orientation.

Social Norms

Informal understandings that govern the behavior of members of a society, dictating how individuals are expected to behave in specific situations.