The company's leverage ratio has moved from 15.2% to 32%. Its return on equity ratio has also moved up, from 20.5% to 45.3%. Its times interest earned ratio has dropped to 3.5. Which of the following is the best statement to describe the company?

Question

Quizplus · Accepted Answer

The increase in leverage ratio from 15.2% to 32% indicates that the company is using more debt to finance its expansion. The drop in times interest earned ratio to 3.5 shows that the company may have difficulty paying the interest on its debt. The increase in return on equity ratio is positive, but it does not necessarily mean that the company is in a safe financial position. Therefore, the best statement to describe the company is that it is depending on debt to finance its expansion.

The Company's Leverage Ratio Has Moved from 15