________________________________________________________________________________________measure FIRM A FIRM B FIRM C INDUSTRY NORM ________________________________________________________________________________________ DEBT RATIO 20% 25% 40% 20% TIMES INTEREST COVERED 8 TIMES 10 TIMES 7 TIMES 9 TIMES PRICE-EARNINGS RATIO 9 TIMES 11 TIMES 6 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