4. Debt management ratios Companies use different sources for financing their assets-internal resources as well as external resources. Company A uses long-term debt to finance its assets, and company B uses capital generated from shareholders to finance its assets. Which company would be considered a financially leveraged firm? Company A Company B Which of the following is true about a firm that uses financial leverage (debt financing)? Interest on debt can be deducted, leading to higher taxable income and a lower available operating income. Interest on debt can be deducted, leading to lower taxable income and lower taxes. Dual Purposes Products Co. has a total assets turnover ratio of 3.50 times, and it generated net annual sales of $25 million by incurring operating expenses of $11.25 million (including depreciation and amortization). Dual Purposes Products Co. reported on its balance sheet a total debt of $2.50 million and pays 7% on its outstanding debt. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Dual Purposes Products Co.'s debt management ratios? Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with debt ratios