An entity has debt finance that exceeds its equity finance by 20%. Under the traditional 'best-practice' approach used by Australian banks and financial institutions, it would be considered that the debt finance is too high.

Question

Quizplus · Accepted Answer

According to the traditional 'best-practice' approach used by Australian banks and financial institutions, the debt-to-equity ratio should not exceed 1:1, which means that the debt finance should not exceed equity finance by more than 100%. Therefore, if an entity has debt finance that exceeds its equity finance by 20%, it would be considered that the debt finance is too high.

An Entity Has Debt Finance That Exceeds Its Equity Finance