A debt to total assets ratio of 80%:
A) means that 20% of investment in assets has been provided by lenders.
B) is undesirable for creditors .
C) is desirable for creditors.
D) is likely to be supported by cyclical entities that have fluctuating profits, such as many high-tech companies.

Question

Quizplus · Accepted Answer

A high debt to total asset ratio is undesirable to creditors as there is less chance of them receiving debt repayment from shareholders' funds if the company goes into liquidation. Generally, companies with stable profits can support high levels of debt.

A Debt to Total Assets Ratio of 80