Question

Suppose you are analyzing two firms in the same industry. Firm A has a profit margin of 10% versus a margin of 8% for Firm B. Firm A's total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)] is 70% versus one of 20% for Firm B. Based only on these two facts, you cannot reach a conclusion as to which firm is better managed, because the difference in debt, not better management, could be the cause of Firm A's higher profit margin.
a. Trueb. False

Answer 1

Answer:

The answer is false

Explanation:

Base on the scenario been described in the question, comparing the two firm and saying there will not reach into a conclusion to which firm is better manage is false, this is because the difference in debt is a result of better management, and this could be the cause of Firm A's higher profit margin. So the claim was false