QUESTION 9 Which of the following ratios gives a perspective on risk in the capi

Question

QUESTION 9 Which of the following ratios gives a perspective on risk in the capital structure ? e Book value per share Degree of financial leverage O Dividend payout Price / earnings ratio QUESTION 10 If a firm's gross profit has declined substantially, this could be attributed to all but which of the following reasons? o The cost of buying inventory has increased more rapidly than selling prices Selling prices have declined due to competition Selling prices have increased due to competition. O Theft is occurring

Explanation / Answer

Question 9 - Degree of financial leverage

Degree of financial leverage measures the changes in operating income of the company due to changes in the capital structure of the company

Degree of financial leverage = EBIT/ (EBIT - Interest)

It takes into account earnings without taking any debt and earnings after considering the debt. This helps us to understand higher the ratio higher is the financial risk.

Question 10 : Selling price have increased due to competition

In all the other three options, which are cost increased more rapidly than selling price, selling price have decreased due to competition and theft has occured, the cost is higher than income or the company has incurred loss. In all these cases, gross profit will suffer.

However, when selling price has increased due to competition, other things remaining constant the company will earn profit and in turn gross profit will be increased.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.