Question

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 debt 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.

Answer 1

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.