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Financial data for three corporations are displayed here: MEASURE FIRM A FIRM B FIRM C INDUSTRY NORM Debt ratio 20% 25% 40% 20% Times interest

Financial data for three corporations are displayed here:

MEASURE FIRM A FIRM B FIRM C INDUSTRY NORM Debt ratio 20% 25% 40% 20% Times interest covered 12 times 14 times 11 time . 13 times Price-earnings ratio 13 times 15 times 10 times 14 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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