Nelson Industries has a higher debt ratio than Butler, Inc., and Nelson also has a higher times
interest earned ratio than Butler. If Nelson and Butler both have the same amount of total assets,
then
A) Nelson may have more non-interest bearing liabilities, such as accounts payable, than Butler
has.
B) if both companies have the same operating income, Butler must be paying a higher interest
rate on its long-term debt than Nelson is paying.
C) Nelson must have higher operating income than Butler.
D) if both companies have the same operating income, a mistake was made in the calculations
because the company with a higher debt ratio must have a lower times interest earned ratio.
A
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