The debt ratio of Company A is .31 and the debt ratio of Company B is .21.Based on this information,an investor can conclude:
A)Company B has more debt than Company A.
B)Company B has a lower risk from its financial leverage.
C)Company A has a lower risk from its financial leverage.
D)Company A has 10% more assets than Company B.
E)Both companies have too much debt.

Question

Quizplus · Accepted Answer

The debt ratio is a financial ratio that measures the extent of a company’s leverage. A lower debt ratio indicates less leverage and thus, generally, lower financial risk. Company B, with a debt ratio of .21, has less leverage compared to Company A's .31, implying lower financial risk from leverage for Company B.

The Debt Ratio of Company a Is