Author Question: Which of the following statements is correct? (Read 4 times)

jordangardner · **on:** Aug 7, 2023

Which of the following statements is correct?

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If one firm has a lower debt ratio than another, we can be certain that the firm with the lower debt ratio will have the higher TIE ratio, as that ratio depends entirely on the amount of debt a firm uses.

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A firm’s debt ratio will not influence its profit margin and times-interest-earned ratio.

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If two firms differ only in their use of debt—i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates—but one firm has a lower debt ratio, the firm that uses less debt will have a higher profit margin on sales.

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If two firms differ only in their use of debt—i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates—but one firm has a lower debt ratio, the firm that uses less debt will have a lower profit margin on sales.

RodrickHac · **Reply #1 on:** Aug 7, 2023

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