Answer to Question #9114 in Economics of Enterprise for DGB

Question

1. Which of the following statements is CORRECT?
a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
b. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
c. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
d. An increase in the DSO, other things held constant, could be expected to increase the ROE.
e. An increase in a firm’s debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.

Answer 1

a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is
either the DSO or the inventory turnover ratio.
DSO is a measure of the average number of days that a company takes to collect
revenue after a sale has been made. A low DSO number means that it takes a
company fewer days to collect its accounts receivable. A high DSO number shows
that a company is selling its product to customers on credit and taking longer
to collect money.