Which of the following statements is most correct?
A) An increase in a firm's debt ratio, with no changes in its sales and operating costs, could be expected to lower its profit margin on sales.
B) An increase in the DSO, other things held constant, would generally lead to an increase in the total asset turnover ratio.
C) An increase in the DSO, other things held constant, would generally lead to an increase in the ROE.
D) In a competitive economy, where all firms earn similar returns on equity, one would expect to find lower profit margins for airlines, which require a lot of fixed assets relative to sales, than for fresh fish markets.
E) It is more important to adjust the Debt/Assets ratio than the inventory turnover ratio to account for seasonal fluctuations.

Question

Quizplus · Accepted Answer

An increase in debt ratio means higher interest payments, which would decrease profits, resulting in a lower profit margin on sales.

Which of the Following Statements Is Most Correct