The risk of creditors in relation to the risk taken by stockholders is measured by:
A)debt to stockholders' equity ratio.
B)gross profit ratio.
C)rate of return to stockholders.
D)None of these answers is correct.

Question

Quizplus · Accepted Answer

The risk of creditors is best measured by the debt to stockholders' equity ratio, as this ratio shows how much of a company's assets are financed by debt (which creditors are owed) versus how much is financed by stockholders' equity. A higher debt to equity ratio indicates a higher risk for creditors, as the company has more debt obligations to meet before fulfilling any obligations to stockholders. The gross profit ratio and rate of return to stockholders are not directly related to measuring the risk of creditors.

The Risk of Creditors in Relation to the Risk Taken