Why does the use of debt lower the profit margin and the ROA?

Q: What is capital rationing?

A:

Q: what happens to the cost of debt if the pourcentage of debt gets lower in the capital structure

A: Cost of debt is the return that is expected by all debt holders. They get their return in the form…

Q: Critically discuss over-investment and under-investment problems due to debt usage. What kinds of…

A: Capital structure means the amount of debt and equity which the firm has as its capital. The company…

Q: r to pay un

A: Horizontal analysis :  Financial analysts use horizontal analysis, also known as trend analysis or…

Q: Why are the costs of selling equity so much larger than the costs of selling debt?

A: The Debt and Equity are part of capital structure of a company. Cost of equity is the minimum…

Q: Credit risk is defined as the inability of _________to meet their debt obligations. For _______the…

A: risk management is a task that requires a huge amount of skill and development. for risk management,…

Q: Using more debt lowers profits and thus the ROA. Why doesn’t debt have the samenegative effect on…

A: Return on Assets (ROA): It is a ratio which states the relation between net income and total assets…

Q: Why is there a positive leverage from use of debt? How can we tell that?

A: Positive leverage: Leverage is the concept of investment by using the borrowed funds. Positive…

Q: why buying on margin is less riskier than short selling?

A: Trading on margin is a process of borrowing funds from a brokerage firm in order to execute trade…

Q: Is capital rationing always a bad thing? Explain

A: Capital rationing: Capital rationing is restriction bestowed upon new investments in the…

Q: What is credit enhancement, and what effect does it have on debt costs?

A: Credit enhancement represents the strategy that improves the business' credit risk profile. It helps…

Q: Discuss the optimal amount of debt in the presence of taxes and costs associated with financial…

A: Financial distress is a situation or a point where a firm is unable to pay its debt or firm is…

Q: What is the percentage of debt used to finance Gap? ____________ What is the percentage of owner’s…

A: Total liability 2019=Current liability+Long term liability=$2,174+$2,322=$4,496

Q: Explain the reasons why do investors prefer high or low pay out ratio? ​​

A: Dividend refers to that portion of the profits which is distributed among the shareholders as a…

Q: unlevered cost of equity under Modigliani-Miller Model?

A: Formula:

Q: What does the financial breakeven point shows?

A: A breakeven point is a situation of no loss no profit. The breakeven point is generally calculated…

Q: Why is it important to check if debt is decreasing if we have decline in interest expense in…

A: The cost of borrowing funds is referred to as interest expenditure. It is the fee charged by a…

Q: Explains the effect of debt on profit margin and return on assets (ROA).

A: Profit margin is net income as a percentage of sales and Return on assets is Net income as a…

Q: What effect does collection policy have on sales, collection time, and bad-debt loss percentage

A: The company's collection policy is defined as the strategies or processes it employs to collect past…

Q: What is off balance sheet financing?  Why do we care about it?

A: Financial statements can be defined as a summary of the financial performance of the business over…

Q: Why are retained earnings not a free source of finance? If so, why are they nonetheless such a…

A: Retained earnings : The part of earnings that is not distributed as dividends is known as retained…

Q: Explain the Leverage and the Incremental Cost of Debt with example?

A: Leverage – Leverage is a financial term it means using the debt for their financial needs and…

Q: Why can we not invest net income? Explain with an example?

A: The net income is the net profit of the company earned during the period. The net income includes…

Q: Why do the companies in high tax brackets incur lower after-tax interest costs by financing through…

A: Debts are the liability issued by the company to raise funds. The debt holder receives fixed…

Q: The higher the debt level, the greater the burden borne by ___________ and the cost of debt.

A: The cost of debt is the rate a company pays on its debt

Q: What caused the increase in liquidity ratios??

A: Liquidity ratios use metrics such as the quick ratio, current ratio, and operating cash flow ratio…

Q: What is positive and negative financial leverage? How are returns or losses magnified as the degree…

A: Leverage is a growth strategy in which companies or individuals use borrowed funds for increasing…

Q: What are debt issue costs and how should they be reported?

A:

Q: advantages of negative interest rate policies?

A: There are pros and cons of negative interest rate policies. In fact, in my opinion negative interest…

Q: Why are claims on income discretionary with equityfinancing but nondiscretionary with debt…

A: Liability: In monetary bookkeeping, a liability is characterized as the future penances of financial…

Q: What is the cost constraint, and how does it affect financial reporting?

A: Under financial accounting, constraints are referred to as boundaries or guidelines prescribed in…

Q: Which type of financial market is more prevalent: direct finance vs indirect finance. What are the…

A: Financial markets are the places and medium through which the trading (purchase and sell) of…

Q: Why short selling are risky than buying margin?

A: Short selling is riskier than buying on margin.   Short selling is borrowing shares from your broker…

Q: Why is EBIT generally considered independent of financial leverage? Why might EBITactually be…

A: EBIT or Earnings Before Interest and Taxes measures all profits before removing interest and tax…

Q: What does the debt ratio represent?

A: Debt to assets ratio: The debt to asset ratio shows the relationship between total asset and the…

Q: ___________ is the possible loss of revenue resulting mainly from a decline in the revenue base.…

A: There are various risks

Q: Are debtors calculated at selling price or finished goods price? and why?

A: The word debtor comes from the word debt which means a company or an individual having a debt…

Q: Which form of financing has the lower after-tax cost, debt or equity? Why?

A: There are two sources of financing for a company. One is debt financing and another is equity…

Q: WHY IS EQUITY MORE EXPENSIVE THAN DEBT?

A: Equity is owner's equity or shareholder's equity. It represents the value that would be returned to…

Q: Why do analysts need to consider different factors when evaluating a company’s ability to repay…

A: Short-term debt or current liabilities refers to the company's financial obligations to the…