TRS Company has a ratio of (total debt/total assets)that is above the industry average,and a ratio of (long term debt/equity)that is below the industry average.These ratios suggest that the firm ________.
A) utilizes assets effectively
B) has too much equity in the capital structure
C) has relatively high current liabilities
D) has a relatively low dividend payout ratio
E) none of these

Question

Quizplus · Accepted Answer

The high total debt to total assets ratio indicates that the company has relatively high current liabilities, which means that it may have difficulty in meeting its short-term obligations. The low long-term debt to equity ratio, on the other hand, indicates that the company has a relatively low level of debt financing compared to equity financing. This suggests that the company is not taking advantage of leverage to increase its returns, but rather is relying more on equity financing. However, it is important to note that none of the answer choices explicitly state that the company has too much debt or too little equity, even though these may be implications of the given ratios.

TRS Company Has a Ratio of (Total Debt/total Assets)that Is