Review Each Of The Following Statements To Determine Which Is Correct Regarding The Importance Of Assessing A Company's Risk Of Paying Debt. (Check All That Apply.)

The correct options of this multiple choice question (mcq) are A, C and D, as if the company’s debt payment is $5000, for example, but its sources of revenues, either by selling goods or services, assets, etc., generate only $3000, let’s say, then the company is not able to pay its debts on specified time period and it is very for creditors or banks or financial institutions to give loan to such company.

In case a company has lot of debt, e.g., from creditors $1,000,000,000, from banks $250,000,000,000,000 and from financial institutions $15,000,000,000, then the company is probably not able to repay its debts, so giving loan to such company is very risky for creditors, banks and financial institutions.

If a company, which uses asset financing i.e., the company secures its Assets, such as Accounts Receivable, Inventory, property, etc., against loan to get financing i.e., get money to use for payments for running business’ operations or other uses, needs more money to pay off its debts, then giving loan to such company is very risky for creditors, banks or financial institutions.

The option B is incorrect choice here as high leverage means the company has more debts than its relative to its equity so if the company wisely uses the debts amount on investments, then the company gain huge profits and can easily payoffs its debts. Due to high leverage, the company has high purchasing power, so it can purchase big properties and makes investments and when sales increases, the company gain huge profits. Then the company is able to payoffs its debts easily. So, a creditor can give loan to such company based on this fact. However, giving loan to such company may be risky for creditors, banks and financial institutions due to heavy losses faced by such company on the huge investments made due to decrease in Sales.