Scenario 8-2. Denny's Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.
$$\begin{array} { l l l l }
&\text { Denny's Diner } & \text { Industry } & \
\text { Current Ratio }& 1.51 & 1.62 \
\text { Average Collection Period } & 2.50 & 5.00 \
\text { Inventory Turnover } & 80 & 75 \
\text { Debt Ratio } &43 \% & 52 \% \
\text { Net Profit Margin } & 10.2 & 8.3
\end{array}$$
-In Scenario 8-2, after analyzing the debt ratio, you concluded that ______.
A) Denny has a problem because the number is so low
B) Denny has a higher risk factor than the industry
C) Denny has financed 43 percent of the assets with borrowed funds
D) Denny needs to be concerned about this ratio and increase it in the near future

Question

Scenario 8-2. Denny's Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.
$$\begin{array} { l l l l } 
&\text { Denny's Diner } & \text { Industry } & \
\text { Current Ratio }& 1.51 & 1.62 \
\text { Average Collection Period } & 2.50 & 5.00 \
\text { Inventory Turnover } & 80 & 75  \
\text { Debt Ratio } &43 \% & 52 \%  \
\text { Net Profit Margin } & 10.2 & 8.3 
\end{array}$$
-In Scenario 8-2, after analyzing the debt ratio, you concluded that ______.
A) Denny has a problem because the number is so low
B) Denny has a higher risk factor than the industry
C) Denny has financed 43 percent of the assets with borrowed funds
D) Denny needs to be concerned about this ratio and increase it in the near future

Quizplus · Accepted Answer

Denny's debt ratio of 43% indicates that 43 percent of the diner's assets are financed with borrowed funds, which is lower than the industry average of 52%, suggesting a lower relative use of debt financing compared to the industry.

Scenario 8-2 -In Scenario 8-2, After Analyzing the Debt Ratio, You Concluded