If a firm's ratio of (shareholders' equity/total assets) is lower than the industry average and its ratio of (long-term debt/shareholders' equity) is also lower than the industry average, this would suggest that the firm ________.
A)has more current liabilities than the industry average
B)has more leased assets than the industry average
C)will be less profitable than the industry average
D)has more current assets than the industry average

Question

Quizplus · Accepted Answer

A low ratio of shareholders' equity/total assets indicates that the firm is relying more on debt financing than equity financing and thus may have more current liabilities than the industry average. Additionally, a low ratio of long-term debt/shareholders' equity indicates that the firm has a lower level of debt in relation to equity, which suggests a lower risk profile and potentially less profitability.

If a Firm's Ratio of (Shareholders' Equity/total Assets) Is Lower