Orange Tree Pharmaceuticals has a ratio of total debt to total assets that is above the industry average and a ratio of long-term debt to equity that is below the industry average. This situation suggests that the company: a. Has a relatively low dividend payout ratio. b. Has high current liabilities. c. Efficiently utilizes its assets. d. Maintains a low current ratio Dreary
i am going w/ B
High current liabilities will increase total debt to total assets ratio. But why would the ratio of long-term debt to equity be lower than industry average? Dreary
Well basically, the only reason how long term debt to equity ratio can be lower, is because there is relatively little long term debt. So what increases the total debt to assets would effectively be attributed to a relatively higher amount of current liabilities.
B for me
“B” for me too, although at this point it just looks like I’m hopping on the bandwagon.
Is it C? Low Debt to Equity ==> Higher Equity High Debt to Assets ==> Lower Assets Lower Assets + Higer equity = Efficient use of assets
ya agree the answer should be b Dreary, was this question from schweser? If yes, can you give me the question ID?
just think Total debt vs LT debt.
The answer is B, and it is from Stalla. Their reason wasn’t good enough: Choice “b” is correct. High current liabilities would increase the total debt and cause the total debt-to-total assets ratio to rise. The high current liabilities are not reflected in the long-term debt to equity ratio. Dreary