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Homework answers / question archive / What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?   A

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?   A

Finance

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

  A.

The firm has a high ratio of current assets/current liabilities.
  B.

The firm pays lower interest on long-term debt than the average firm.
  C.

None of the options are correct.
  D.

The firm has more short-term debt than average.
  E.

The firm has a high ratio of total cash flow/long term debt.

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Ans.

If the firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average , this is because the firm has more short-term debt than average.

so the correct option is D.

The firm has more short-term debt than average.

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