The debt in relation to the risk taken by stockholders is measured by:
A)debt to stockholders' equity.
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 amount of debt a company has in relation to the amount of equity provided by stockholders. This indicates the level of risk taken by stockholders, as the more debt a company has, the greater the risk to stockholders in the event of bankruptcy or default. The other options listed do not provide information on the level of debt and its relationship to stockholder risk.

The Debt in Relation to the Risk Taken by Stockholders