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5. More on debt management ratios Aa Aa E The extent of financial leverage in a firmm Debt ratios measure the proportion of total assets

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5. More on debt management ratios Aa Aa E The extent of financial leverage in a firmm Debt ratios measure the proportion of total assets financed by a firm's creditors Shoe Barn Inc. has a debt-to-equity ratio of 2.60, compared to the industry average of 2.08. Its competitor Heally Corp., however, has a debt-to-equity ratio of 3.90. Based on what debt-to-equity ratios imply, which of the following statements is true? O Heally Corp. has higher creditworthiness as compared to Shoe Barn Ind. O Heally Corp, has greater financial risk as compared to Shoe Barn Inc. and to the average financial risk in the industry. O Heally Corp.'s creditors face lesser risk than the average financial risk in the industry. O Shoe Barn Inc.'s shareholders expect magnified returns but higher risk as compared to Heally Corp. Suppose the stock pnce of Shoe Barn Inc. falls by 10%, what impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet? O The market debt ratio will increase, reflecting a decrease in the financial risk of the company. O The market debt ratio will increase, reflecting an increase in the financial risk of the company. O The market debt ratio will decrease, reflecting a decrease in the financial risk of the company. O The market debt ratio will decrease, reflecting an increase in the financial risk of the company. Data Collected S hoe Barn Inc. reported the following figures in its annual report. (Millions of dollars) Year 1

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