Q1. Of the above three restaurant chains, which is your favorite? (__________ / __________ / __________) • DIN operates Applebee’s Neighborhood Grill & Bar and IHOP.
• DRI operates Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones Barbeque and Grill.
• NATH operates Nathan’s Famous.
Q2. (________ / DRI / ________) have sufficient current assets to pay off current liabilities and, therefore, have a current ratio (________ / less) than 1.0. A current ratio that is (________ / higher) than the industry average may indicate a lack of short-term liquidity, which includes (DIN / ________ / NATH). Does this indicate that this corporation is insolvent or unable to pay its bills? (Yes / ________) Explain.
Q3. (________ / ________ / NATH) are relying more on debt to finance assets and have a debt ratio (greater / less) than 50%. Darden Restaurants is financing ________ of assets with debt. For a company wanting to be lower risk and less dependent on debt, a(n) (increasing / ________) trend in the debt ratio is considered favorable. A company that has higher financial risk will, in general, be required to pay (________ / lower) interest rates when borrowing money.
Q4. Why does a company with a higher debt ratio tend to have greater financial risk?
Q5. Does a high debt ratio indicate a weak corporation? (Yes / No) Explain your answer.