The Debt Ratio of Company a Is

question 219

Multiple Choice

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:

• A) Company A has a lower risk from its financial leverage.
• B) Company B has more debt than Company A.
• C) Company A has 10% more assets than Company B.
• D) Company B has a lower risk from its financial leverage.
• E) Both companies have too much debt.

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Definitions:

Combined Turnover

A measure of a company’s ability to use its assets and liabilities effectively to generate sales, combining inventory turnover with accounts receivable turnover.

Fixed Expenses

Expenses that remain constant regardless of the amount of production or business operations, like lease payments or wages.

Return On Investment (ROI)

A financial metric used to evaluate the efficiency or profitability of an investment, calculated as the return relative to the investment's cost.

Return On Investment (ROI)

A financial metric used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments, calculated by dividing net profit by the cost of investment.