Which of the following statements are true about the interest-burden ratio?Check all that apply:If the company has no financial leverage, the interest-burden ratio will be equalto 1.A company with higher financial leverage will have a lower interest-burdenratio.if the company has no financial leverage, the interest-burden ratio will be equalto 0.It can be expressed as Net profits/Pretax profits.It can be expressed as EBIT/Interest Expense.

Interest burden ratio is also called as interest coverage ratio. It is a financial ratio that is…

Answered: Which of the following statements are…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 24MCQ: When analyzing a companys debt to equity ratio, lithe ratio has a value that is greater than one,...

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When analyzing a companys debt to equity ratio, lithe ratio has a value that is greater than one, then the company has: a. equal amounts of debt and equity. c. less debt than equity. b. more debt than equity. d. none of these.
Which of the following statements are true about the interest-burden ratio? Check all that apply: It can be expressed as EBIT/Interest Expense. If the company has no financial leverage, the interest-burden ratio will be equal to 0. A company with higher financial leverage will have a lower interest-burden ratio. If the company has no financial leverage, the interest-burden ratio will be equal to 1. It can be expressed as Net profits/Pretax profits.
Based on these calculations, which company appears to be more risky and which company appears to be more profitable? How can you tell? (Keep in mind that the current ratio and debt to equity ratio are "risk ratios" and the gross profit ratio and return on equity ratio are "profitability ratios").
Which of the following is not likely to be used to measure a company's liquidity? a) Financial leverage b) Working capital c) Current ratio d) Acid-test (quick) ratio
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.
If Company A uses more debt than Company B and both companies have identical operations in terms of sales, operating costs, etc., which of the following statements is true?(a) Company B will definitely have a higher current ratio.(b) Company B has a higher profit margin on sales than Company A.(c) The two companies have an identical profit margin on sales.(d) Company B's return on total assets would be higher.
Compare and contrast the net income margins of both Company A and B. Do you think the company with the lower net income margin is in absolute financial distress? Explain.
Thinking about the definition of the term "flotation costs," should we expect the flotation costs for debt to be significantly lower than those for equity? Why or why not? how can the answer be supported.
Which of the following statements is CORRECT? A. Net working capital is defined as current assets minus the difference between current liabilities and notes payable, and any increase in the current ratio automatically indicates that net working capital has increased B. If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt. C. Net working capital is defined as current assets minus the difference between current liabilities and notes payable, and any decrease in the current ratio automatically indicates that net working capital has decreased. D. Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.
Which TWO of the following are possible effects of rising prices upon financial statements? Understatement of capital employed Overstatement of capital employed Overstatement of profits Understatement of profits
Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROI
Everything else remaining the same, the cheapest source in the calculation of WACC is: A) after tax cost of debt B) preferred stock C) cost of external equity D) cost of internal equity

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