If a firm's debt ratio is greater than 0.5,then:
A) its current liabilities are quite high.
B) its debt-equity ratio exceeds 1.0.
C) it has too few total assets.
D) it has more long-term debt than equity.

Question

Quizplus · Accepted Answer

The debt ratio is calculated by dividing the firm's total debt by its total assets. A debt ratio greater than 0.5 means that the firm has more debt than assets. This also means that the debt-equity ratio exceeds 1.0, as the debt-equity ratio is calculated by dividing the total debt by the total equity. Therefore, option B is the correct answer. Options A, C, and D are incorrect as they do not accurately describe the meaning of the debt ratio.

If a Firm's Debt Ratio Is Greater Than 0