The capitalization of interest (versus expensing)
The capitalization of interest (versus expensing) will have which of the following effects on a company’s financial ratios?
A. Lower interest coverage ratio.
B. Lower debt-to-equity ratio.
C. Higher asset turnover ratio.
参考解答
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2024-11-15 02:27:37
Ans: B.
The capitalization of interest will increase shareholders’ equity, resulting in a lower debt-to-equity ratio.
A is incorrect. Since interest expense (denominator) will be lower when interest is capitalized, the interest coverage ratio will be higher, not lower.
C is incorrect. The capitalization of interest will result in a larger asset base and a lower asset turnover ratio (sales/ average assets).
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