Financial Statement Analysis

Two software companies that report their financial statements under U.S. GAAP (generally accepted accounting principles) are identical except as to how soon they judge a project to be technologically feasible. One firm does so very early in the development cycle while the other usually waits until just before the project is released to manufacturing. Compared to the company that judges technological feasibility early, the one that waits until closer to manufacturing will most likely report lower:

A. financial leverage. B. total asset turnover. C. cash flow from operations. The answer is C, which I agree. But why A is not correct? The company expense more will capitalize less, therefore smaller asset. That will casue lower financial leverage, isn’t it? Please help. Thanks

If I am remebering correctly, under GAAP, developmental costs can be capitalized until the asset is substantially complete and ready for its intended use.

More capitalization of costs brings higher net income, lower equity and higher total assets.