How is the debt-to-equity ratio computed?
A) total liabilities divided by total shareholders' equity
B) current liabilities divided by total shareholders' equity
C) current assets divided by total shareholders' equity
D) total assets divided by total shareholders' equity

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is computed by dividing the total liabilities by the total shareholders' equity. This ratio measures the proportion of debt financing to equity financing used by a company. A higher ratio indicates higher financial risk, as it suggests that the company has more debt obligations to meet. Conversely, a lower ratio indicates a lower financial risk and a stronger equity base.

How Is the Debt-To-Equity Ratio Computed