📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    Which of the following statements is

    correct?
    A A low receivables turnover ratio is desirable. Correct Answer Incorrect Answer
    B An increase in net profit margin with no change in sales or assets indicates poor ROI. Correct Answer Incorrect Answer
    C A higher tax rate for a firm lowers its interest coverage ratio. Correct Answer Incorrect Answer
    D A lower total debt-to-equity ratio reduces the financial risk of a firm. Correct Answer Incorrect Answer
    E All of the above are correct Correct Answer Incorrect Answer

    Solution

    • Receivables turnover ratio → A higher ratio is desirable as it indicates efficient collection of receivables. Hence, (A) is incorrect. • Net profit margin increase with constant sales/assets → This would improve ROI, not reduce it. Hence, (B) is incorrect. • Interest coverage ratio is calculated as EBIT ÷ Interest Expense. It is unaffected by the tax rate, so (C) is incorrect. • Debt-to-equity ratio → A lower ratio shows that the firm is less dependent on debt financing and relies more on equity. This reduces the risk of financial distress, making (D) correct.

    Practice Next
    More Accounts Questions

    Relevant for Exams:

    ask-question