One Problem with Debt Ratios Is That They Provide No

question 60

Short Answer

One problem with debt ratios is that they provide no information about the ability of the firm to generate ________________________________________ to service debt.

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Definitions:

Economies of Scale

The cost advantage that arises with increased output of a product due to spreading fixed costs over more units of production.

Minimum Efficient Scale

The smallest level of production a firm can achieve while still taking full advantage of economies of scale regarding costs per unit.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, leading to a reduction in average costs with increased output.