Keep Afloat Tugboats had the following debt ratios 0.60; 0.50; 0.45 for 2017, 2018, 2019 respectively. Which of the following statements most correctly depicts the changing ratios?
A)The proportion of assets represented by equity has increased.
B)The business is more at risk to interest rate changes due to increased borrowing.
C)The business is less at risk due to exchanging accounts payable for notes payable.
D)Business risk has not changed due to leverage remaining constant.

Question

Quizplus · Accepted Answer

The decreasing debt ratios from 0.60 to 0.45 over the years indicate that the proportion of assets financed by debt is decreasing, which implies that the proportion of assets represented by equity is increasing. This is because as a company reduces its reliance on debt, equity financing becomes a larger part of its capital structure.

Keep Afloat Tugboats Had the Following Debt Ratios 0