Ace Corporation has a debt to total assets ratio of 65%. This tells the user of Ace's financial statements
A) Ace is getting a 35% return on its assets
B) There is a risk Ace cannot pay its debts as they come due
C) 65% of the assets are financed by the stockholders
D) Ace should issue more debt to reduce its risk

Question

Quizplus · Accepted Answer

A debt to total assets ratio of 65% indicates that a significant percentage of Ace's assets are financed through debt. This means that there is a risk that Ace may not be able to pay its debts as they come due. A high debt to total assets ratio means a higher financial risk for the company.

Ace Corporation Has a Debt to Total Assets Ratio of 65