Which of the following statements is CORRECT?
A) The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
B) If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
C) An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
D) An increase in the DSO, other things held constant, could be expected to increase the ROE.
E) An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower its profit margin.

Question

Quizplus · Accepted Answer

An increase in a firm's debt ratio will increase its interest expense, which will lower its net income and therefore its profit margin. The other statements are either incorrect or do not have a clear relationship between the variables mentioned.

Which of the Following Statements Is CORRECT