If the ratio of total stockholders' equity to total assets was greater in 2020 than in 2019, then:
A)total assets increased by a greater amount than did total stockholders' equity.
B)the ratio of total liabilities to total assets was smaller in 2020 than in 2019.
C)creditors would consider it riskier to lend to this company in 2020 than in 2019.
D)the ratio of total liabilities to total assets was larger in 2020 than in 2019.

Question

Quizplus · Accepted Answer

If the ratio of total stockholders' equity to total assets was greater in 2020 than in 2019, it means that the company had more equity financing in 2020 compared to 2019. This could have happened due to an increase in retained earnings or additional stock issuances. Since total assets are in the denominator, an increase in equity financing would lead to a decrease in the ratio of total liabilities to total assets, which is the complement of the ratio of total stockholders' equity to total assets. Therefore, option B is the correct choice. Options A, C, and D are not necessarily true based on the given information.

If the Ratio of Total Stockholders' Equity to Total Assets