Question: (Assessing leverage use) Some financial data for three corporations are displayed here. a- Which firm appears to be excessively leveraged? b- Which firm appears to

(Assessing leverage use) Some financial data for three corporations are displayed here.

(Assessing leverage use) 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 explanation can you provide for the higher price/earnings ratio enjoyed by firm B as compared with firm A?

INDUSTRY NORM MEASURE Debt ratio Times interest covered Price/earnings ratio FIRM A 20% 8 times 9 times FIRM B 25% 10 times 11 times FIRM C 10% 7 times 6 times 20% 9 times 10 times

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