📢 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 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
    More Financial Management Questions

    Relevant for Exams:

    ask-question