Ruth identifies the firm'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

The best suggestion for reducing a high leverage ratio is to pay back part of the debts. This will decrease the amount of debt the company has in relation to their assets, which will in turn lower the leverage ratio. Increasing the money supply or reducing the sales to total assets ratio may not necessarily have an impact on the leverage ratio, and maintaining more current assets than current liabilities may not be feasible or desirable for the company's overall financial health.

Ruth Identifies the Firm's Leverage Ratio to Be Very High