Which of the following statements is true concerning the evaluation of solvency ratios for a company?
A)A lower debt-to-equity ratio means the company is more risky.
B)A lower interest coverage ratio means that the company is more risky.
C)A higher interest coverage ratio means that the company is more risky.
D)A higher interest coverage ratio and a higher debt-to-equity ratio mean that a company is more risky.

Question

Quizplus · Accepted Answer

A lower interest coverage ratio means that the company may have difficulty paying its interest expense, which indicates more financial risk. A lower debt-to-equity ratio typically means that the company has less debt relative to equity, indicating a lower level of financial risk. A higher interest coverage ratio indicates the company is more capable of paying its interest expenses, indicating less financial risk. A higher debt-to-equity ratio typically means that the company has more debt relative to equity, indicating a higher level of financial risk.

Which of the Following Statements Is True Concerning the Evaluation