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If a bank loan officer were considering a company’s loan request, which of the following statements would be CORRECT, other things held constant? a. The lower the company’s inventory turnover ratio, the lower the interest rate the bank should charge. b. The lower the total debt to total capital ratio, the lower the interest rate the bank should charge. c. The lower the company’s TIE ratio, the lower the interest rate the bank should charge. d. The higher the days sales outstanding ratio, the lower the interest rate the bank should charge. e. The lower the current ratio, the lower the interest rate the bank should charge.

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Answer: b. The lower the total debt to total capital ratio, the lower the interest rate the bank should charge

Explanation:

A company's Debt to total Capital ratio is a measure of the Company's Financial Leverage.

It is calculated by dividing the Company's total debt by all of its interest bearing debt ( short term and long term) PLUS all Shareholder Euity.

The lower the amount, the lower investors consider the risk of the company to be because it is assumed that they have enough Capital to pay off Liabilities.

Therefore, a lower Debt to Capital Ratio will signify to the bank that the Company has a good chance of paying off their debt so they will be charged a lower rate as they are less risky.

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