< Back to Assignment Attempts: Keep the Highest: /6 Aa Aa 4. Debt management ratios Companies have the opportunity to use varying amounts of different sources of financing to acquire their assets, including internal and external sources, and debt (borrowed) and equity funds. Aunt Dottie's Linen Inc. reported no long-term debt in its most recent balance sheet. A company with no debt on its books is referred to as: A company with no leverage, or an unleveraged company A company with leverage, or a leveraged company Which of the following is true about the leveraging effect? Interest on debt can be deducted from pre-tax income, resulting in a greater taxable income and a smaller available operating income. Interest on debt is a tax deductible expense, which means that it can reduce a firm's taxable income and tax obligation. Red Snail Satellite Company has a total asset turnover ratio of 6.00x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $2.50 million on which it pays a 7% interest rate. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding Information, what are the values for Red Snail Satellite's debt management ratios? Debt ratio Value Ratio Times-interest-earned ratio 4 Red Snail Satellite Company raises around from creditors for each dollar of equity. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with debt ratios.