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

Question

Quizplus · Accepted Answer

Increasing a firm's debt ratio while keeping sales and operating costs constant means that the firm's interest expenses will increase, resulting in lower profit margins. The other statements are incorrect.

Which of the Following Statements Is CORRECT