If a firm has a debt to owners' equity ratio of .75 (or 75%) we can conclude that
A) it has relied more on debt than equity to finance its operations.
B) the firm is likely to have trouble paying its short-term debts when they come due.
C) its total liabilities are less than its owners' equity.
D) the firm has expenses that are exactly 75% of its gross profit.

Question

Quizplus · Accepted Answer

This ratio compares the debt (total liabilities) invested in the company with the total equity (total owners' equity) invested in the company. If the result is greater than 1 (or 100%), the firm is funded with more debt capital than equity capital.

If a Firm Has a Debt to Owners' Equity Ratio