Question
Some financial data for three corporations are displayed. A. Which firm appears to be excessively leveraged? B. Which firm appears to be employing financial leverage
Some financial data for three corporations are displayed.
A. Which firm appears to be excessively leveraged?
B. Which firm appears to be employing financial leverage to the most appropriate degree?
C. What explanations can you provide for the higher price-earnings ratio enjoyed by firm B as compared with firm A?
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
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Financial Management for Public, Health and Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
5th edition
1506326846, 9781506326863, 1506326862, 978-1506326849
