Debt-to-equity ratio is
A)a useless ratio for determining your credit capacity.
B)calculated by dividing monthly debt payments by net monthly income.
C)determined by dividing your assets by liabilities.
D)calculated by dividing total liabilities by net worth.
E)rarely used by creditors in determining credit worthiness.

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is calculated by dividing total liabilities by net worth, so option D is the correct choice. This ratio is a measure of a company's financial leverage or how much of its assets are financed by debt. It helps investors and creditors assess a company's risk and can be used to determine credit capacity. Options A, B, C, and E are incorrect because they do not accurately describe the debt-to-equity ratio.

Debt-To-Equity Ratio Is