If a firm's ratio of stockholders' equity/total assets is lower than the industry average and its ratio of long-term debt/stockholders' equity is also lower than the industry average, this would suggest that the firm ________.
A) has more current liabilities than the industry average
B) has more leased assets than the industry average
C) will be less profitable than the industry average
D) has more current assets than the industry average

Question

Quizplus · Accepted Answer

A lower stockholders' equity/total assets ratio suggests that the firm has a higher proportion of liabilities (both current and long-term) relative to its assets compared to the industry average. Since its long-term debt/stockholders' equity ratio is also lower, it implies the firm does not rely heavily on long-term debt, making it likely that the firm has more current liabilities relative to its equity than the industry average.

If a Firm's Ratio of Stockholders' Equity/total Assets Is Lower