Lu Lu's Catering has a debt ratio equal to 0.3 and its competitor, Able's Bakery, has a debt ratio equal to 0.7. Determine the statement below that is correct.
A)Able's Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu's.
B)Able's Bakery's financial leverage is less than Lu Lu's.
C)Able's Bakery's financial leverage is greater than Lu Lu's.
D)Lu Lu's has a higher risk from its financial leverage.
E)Higher financial leverage involves lower risk.

Question

Quizplus · Accepted Answer

Able's Bakery has a higher debt ratio, indicating it uses more debt relative to equity, thus having greater financial leverage compared to Lu Lu's Catering.

Lu Lu's Catering Has a Debt Ratio Equal to 0