If one firm has a higher total debt to total capital ratio than another, we can be certain that the firm with the higher total d

Question

3 years ago

11

If one firm has a higher total debt to total capital ratio than another, we can be certain that the firm with the higher total d

ebt to total capital ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses.True / False.

Business

1 answer:

vodomira [7] · Answer 1 · 2022-07-31T15:16:04+03:00

Answer:

True

Explanation:

Total debt to total capital ratio, also known as D/C ratio is a ratio that measures a company's capital structure, financial solvency, and degree of leverage, at a particular point in time.

While the Times Interest Earned (TIE) is a ratio which measures the ability of an organization to pay its debt obligations.

So A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength and hence would have a lower ability to pay its debt obligations one which the TIE ratio measures.