Answer:
c. An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.
Explanation:
CHECK THE COMPLETE QUESTION BELOW;
Which of the following statements is CORRECT?
If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE. b. An increase in the DSO, other things held constant, could be expected to increase the ROE. c. An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin. d. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio. e. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio
The correct statement here is " An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin"
A debt ratio which is regarded as "financial ratio" it gives the ratio of total debt to total asset, it helps in evaluation of financial leverage of a company. During some period if there is no change in sales i.e if the returns of the company doesn't increase or the operating cost is reduced the " profit margin"( which measure the company profitability)will definitely reduced" as a result of the debt ratio that doesn't reduce since the proportion of the company's asset is continuously financed by debt. Hence An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.
