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 A has a lower risk from its financial leverage.
B) Company B has more debt than Company A.
C) Company A has 10% more assets than Company B.
D) Company B has a lower risk from its financial leverage.
E) Both companies have too much debt.

Question

Quizplus · Accepted Answer

A lower debt ratio indicates that Company B has less financial leverage and therefore a lower risk associated with its debt compared to Company A.

The Debt Ratio of Company a Is