The more a company relies on long-term borrowing to finance its business activities,the lower its debt ratio and long-term solvency risk.

Question

Quizplus · Accepted Answer

The statement is incorrect. The more a company relies on long-term borrowing, the higher its debt ratio and long-term solvency risk. Long-term borrowing adds to a company's long-term liabilities, increasing its debt-to-equity ratio and consequently, its long-term solvency risk.

The More a Company Relies on Long-Term Borrowing to Finance