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 are correct.

Question

Quizplus · Accepted Answer

The debt to stockholders' equity ratio measures the proportion of a company's financing that comes from creditors and investors. A higher ratio indicates that creditors are taking on more risk compared to stockholders, as it means the company is using more debt relative to equity.

The Risk of Creditors in Relation to the Risk Taken