Which of the following statements describing the debt ratio is false?
A)It is of use to both internal and external users of accounting information.
B)A relatively high ratio is always desirable.
C)The dividing line for a high and low ratio varies from industry to industry.
D)Many factors such as a company's age, stability, profitability and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
E)The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.

Question

Quizplus · Accepted Answer

A relatively high ratio is not always desirable as it may indicate a company's inability to pay off its debts in the long term. A low debt ratio is generally considered better as it indicates that the company has a lower risk of defaulting on its debts.

Which of the Following Statements Describing the Debt Ratio Is