If a firm's ratio of (total liabilities/total assets)is higher than the industry average while the total capitalization of the firm's stockholders' equity)is lower than the industry average,the most likely assumption is that the firm _______.
A) has more current liabilities than the industry average
B) has more leased assets than the industry average
C) will be more profitable than the industry average
D) has more current assets than the industry average
E) none of these

Question

Quizplus · Accepted Answer

The high ratio of total liabilities to total assets indicates that the firm has more debt compared to its assets, which can mean that it has more current liabilities than the industry average. Additionally, the low total capitalization of stockholders' equity suggests that the firm may have a lower financial capacity to pay its debts or invest in growth opportunities, which can impact its profitability. However, the profitability cannot be assumed solely based on these two ratios.

If a Firm's Ratio of (Total Liabilities/total Assets)is Higher Than