What best explains why a firm's ratio of (long-term debt/total capital)is lower than the industry average,while the ratio of (income before interest and taxes/debt interest charges)is lower than the industry average?
A)The firm pays lower interest on long-term debt than the average firm
B)The firm has more short-term debt than average
C)The firm has a high ratio of (current assets/current liabilities)
D)The firm has a high ratio of (total cash flow/long term debt)
E)none of the above

Question

Quizplus · Accepted Answer

A higher proportion of short-term debt in the firm's capital structure would decrease its long-term debt/total capital ratio relative to the industry average. Additionally, a lower income before interest and taxes to debt interest charges ratio may indicate that the firm has higher interest payments relative to its income than the industry average, potentially due to a greater proportion of short-term debt or higher interest rates on its long-term debt. However, none of the choices indicate a high ratio of (current assets/current liabilities) or (total cash flow/long-term debt) which relates to the given problem.

What Best Explains Why a Firm's Ratio of (Long-Term Debt/total