If the resulting percentage for either of the ____________ ratios is ____________than the average for the industry, there is potential cause for alarm from a control perspective.
A) Profitability, higher
B) Profitability, lower
C) Leverage, higher
D) Activity, higher

Question

Quizplus · Accepted Answer

Leverage ratios measure the amount of debt a company uses to finance its assets. A higher leverage ratio compared to the industry average indicates that the company may be taking on too much debt, which can increase financial risk. This can lead to difficulties in meeting debt obligations, especially if the company's earnings are volatile. High leverage can also limit a company's ability to obtain additional financing and may lead to higher interest costs. Therefore, from a control perspective, a higher leverage ratio than the industry average is a potential red flag that warrants further investigation.

If the Resulting Percentage for Either of the ____________ Ratios