New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    Which of the following statements is

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

    Solution

    The lower the total debt-to-equity ratio, the lower the financial risk for a firm. The total debt-to-equity ratio measures the proportion of a firm's total debt to its shareholders' equity. A lower ratio indicates that the firm relies less on debt financing and has a higher proportion of equity. This lower ratio implies lower financial risk because the firm has less debt to repay, reducing the potential for financial distress.

    Practice Next

    Relevant for Exams: