Which of the following is correct?
A)The times interest earned ratio is considered a better test of the ability to cover interest charges than the cash coverage ratio.
B)The debt to equity ratio shows the relative proportion of total assets financed by debt.
C)The higher the debt-to-equity ratio, the higher the potential return to the stockholders if return on assets (ROA) exceeds the after tax cost of interest.
D)The cash coverage ratio compares the cash generated by a company to its cash obligations for the prior period.

Question

Quizplus · Accepted Answer

A high debt-to-equity ratio means that there is a lot of debt financing relative to equity financing. If the ROA exceeds the after tax cost of financing, the excess represents a return to stockholders, which increases the return on their investment.

Which of the Following Is Correct