Which of the following statements is correct?
A)If Company A has a higher debt ratio that Company B, then we can be sure that A will have a lower times- interest-earned ratio than B.
B)Suppose two companies have identical operations in terms of sales, cost of goods sold, interest rate on debt, and assets.However, Company A used more debt than Company B; that is, Company A has a higher debt ratio.Under these conditions, we would expect B's profit margin to be higher than A's.
C)The ROE of any company which is earning positive profits and which has a positive net worth (or common equity) must exceed the company's ROA.
D)Statements a, b, and c are all true.
E)Statements a, b, and c are all false.

Question

Quizplus · Accepted Answer

A higher debt ratio typically leads to higher interest expenses, which can reduce net income and thus lower the profit margin.

Which of the Following Statements Is Correct