BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
will not experience any difficulty with its creditors.
|
|
|
has less liquidity than other firms in the industry.
|
|
|
will be viewed as having high creditworthiness.
|
|
|
has greater than average financial risk when compared to other firms in its industry.
|
Detailed explanation-1: -Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company a will not experience any difficulty with its creditors.
Detailed explanation-2: -Defining a High Debt-to-Equity Ratio For example, if your small business has $400, 000 in total liabilities and $250, 000 in total stockholders’ equity, your debt-to-equity ratio is 1.6. This means you use $1.60 in debt for every $1 of equity, or your debt level is 160 percent of your equity.
Detailed explanation-3: -Palo Alto Networks Debt to Equity Ratio: 7.241 for Oct. 31, 2022.
Detailed explanation-4: -The debt-to-equity ratio is calculated by dividing a corporation’s total liabilities by its shareholder equity. The optimal D/E ratio varies by industry, but it should not be above a level of 2.0.
Detailed explanation-5: -Depending on the industry, a high D/E ratio can indicate a company that is riskier. D/E ratios vary across industries because some industries are more capital intensive than others. The financial sector has one of the highest D/E ratios but this is not indicative of high risk, just the nature of the business.