A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

Question

Quizplus · Accepted Answer

The statement is false. An increase in the debt-to-equity ratio means that the company has taken on more debt relative to equity, which increases the risk of default for the company. Therefore, the degree of risk in the firm's financing structure increased during Year 2.

A Company's Debt-To-Equity Ratio Was 1