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Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity. As a result

Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity.

As a result of this new, lower, DSO, total debt

and total capital

This means that the total

debt

/

total capital ratio must

Step

3

: Practice: Ratio analysis

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