Ruth, a financial consultant, determines her client's leverage ratio to be very high. What suggestion could Ruth give to help the firm reduce its leverage ratio?
A) Increase the money supply by selling a part of its assets.
B) Pay back part of its debts to improve the ratio.
C) Maintain more current assets than current liabilities.
D) Reduce the sales to total assets ratio of the firm.

Question

Quizplus · Accepted Answer

Paying back part of the firm's debts would reduce the firm's leverage ratio. The leverage ratio measures the proportion of debt a company is using to finance its assets relative to its equity. By paying back debt, the company is reducing its overall debt load and improving the ratio. A and D do not directly address the leverage ratio, and C may not be feasible or effective in reducing the leverage ratio.

Ruth, a Financial Consultant, Determines Her Client's Leverage Ratio to Be