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(Assessing leverage use) Some financial data for three corporation are displayed here. Measure FIRM A FIRM B FIRM C INDUSTRY NORM Debt ratio 20% 25%
| (Assessing leverage use) Some financial data for three corporation are displayed here. | |||||||
| Measure | FIRM A | FIRM B | FIRM C | INDUSTRY NORM | |||
| Debt ratio | 20% | 25% | 40% | 20% | |||
| Times interest covered | 8 times | 8 times | 10 times | 9 times | |||
| Price/earnings ratio | 9 times | 11 times | 11 times | 10 times | |||
| a. Which firm appears to be excessively leveraged? | |||||||
| b. Which firm appears to be employing financial leverage to the most appropriate degree? | |||||||
| c. What explanation can you provide for the higher price/earnings ratio enjoyed by firm B as compared with firm A? | |||||||
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Applied Quantitative Finance
Authors: W.; T. Kleinkow; G. Stahl Hardle
1st Edition
3540434607, 978-3540434603
