Which of the following solvency ratios is the best measure to determine the degree to which a company relies on outsiders for funds?
A)Debt-to-equity ratio
B)Times interest earned ratio
C)Debt service coverage ratio
D)Cash flow from operations to capital expenditures ratio

Question

Quizplus · Accepted Answer

The debt-to-equity ratio measures the proportion of a company's financing that comes from debt as compared to equity. A high debt-to-equity ratio indicates that a company is relying heavily on outside sources of funds (i.e. debt) to finance its operations, while a lower ratio indicates that a company is relying more heavily on internally-generated funds (i.e. equity). Therefore, the debt-to-equity ratio is the best measure to determine the degree to which a company relies on outsiders for funds.

Which of the Following Solvency Ratios Is the Best Measure