If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT? Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm. The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.

Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.

Explanation:

Debt ratio is also referred to as debt to total assets ratio. It represents the total debt in the capital structure of a firm with respect to it's total assets. It conveys the proportion of debt utilized by a firm to finance it's assets.

The lower the ratio, the better it is for the firm. It is mathematically represented as follows:

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Total debt includes both long term debt and short term debt whereas total assets would include fixed tangible as well as intangible assets.

A lower debt to total assets ratio or debt ratio conveys stronger financial position of a company to meet it's commitments and obligations.

Thus, in the given case, the bank loan officer would most likely grant the loan at a lower rate of interest if the debt ratio is lower. This is because a lower ratio conveys better credit worthiness.

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