Which of the following statements is correct?
A) If Company A has a higher debt ratio than Company B,then we can be sure that A will have a lower times-interest-earned ratio than B.
B) Suppose two companies have identical operations in terms of sales,cost of goods sold,interest rate on debt,and assets.However,Company A uses more debt than Company B;that is,Company A has a higher debt ratio.Under these conditions,we would expect B's profit margin to be higher than A's.
C) The ROE of any company which is earning positive profits and which has a positive net worth (or common equity)must exceed the company's ROA.
D) Statements a,b,and c are all true.
E) Statements a,b,and c are all false.

Question

Quizplus · Accepted Answer

A higher debt ratio typically leads to higher interest expenses, which can reduce net income and thus lower the profit margin.

Which of the Following Statements Is Correct