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Some financial data for three companies and industry norm are displayed below Measure companyA company b company C Industry norm deb ratio 20% 15% 35%
Some financial data for three companies and industry norm are displayed below
Measure | companyA | company b | company C | Industry norm |
deb ratio | 20% | 15% | 35% | 25% |
time interest earned | 11 times | 9 times | 6 times | 9 times |
price earnings ratio | 12 times | 10 times | 5 times | 10 times |
: REQUIRED:
a) Which company appears to be using too much debt in its financing mix?
b) Which company appears to be employing debt to the most appropriate degree?
c) Which explanation can you provide for the higher price-earnings ratio enjoyed by company A as compared with company B?
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