You have been asked to write a financial analysis report for Companies X and Y.

Question

You have been asked to write a financial analysis report for Companies X and Y. Company X has a debt-to-equity ratio that is much lower than the industry average, with Company Y having a debt-to-equity ratio much higher than industry average. The times interest earned ratio for Company X is much higher than the industry average, and the ratio for Company Y is much lower. Which one of the following statements will not be part of your financial analysis report for these two companies?
Answer A. Company Y’s lower times interest earned means that it may experience more difficulties than Company X in obtaining attractive financing terms on new borrowings.
B. Company X is a less risky company than Company Y
C. Company X generates less income compared to its obligatory payments to creditors than Company Y
D. Company X is a less leveraged company than Company Y You have been asked to write a financial analysis report for Companies X and Y. Company X has a debt-to-equity ratio that is much lower than the industry average, with Company Y having a debt-to-equity ratio much higher than industry average. The times interest earned ratio for Company X is much higher than the industry average, and the ratio for Company Y is much lower. Which one of the following statements will not be part of your financial analysis report for these two companies?
Company Y’s lower times interest earned means that it may experience more difficulties than Company X in obtaining attractive financing terms on new borrowings.
Company X is a less risky company than Company Y
Company X generates less income compared to its obligatory payments to creditors than Company Y
Company X is a less leveraged company than Company Y A. Company Y’s lower times interest earned means that it may experience more difficulties than Company X in obtaining attractive financing terms on new borrowings.
B. Company X is a less risky company than Company Y
C. Company X generates less income compared to its obligatory payments to creditors than Company Y
D. Company X is a less leveraged company than Company Y

Explanation / Answer

ANSWER B. Company X is a less risky company than Company Y

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