Financial economists prefer to use market values rather than book values when measuring debt ratios because market values are:
A)more stable than book values.
B)a better reflection of current information.
C)net of taxes.
D)used by Standard & Poor's to measure credit worthiness.
E)most commonly required by bond covenants.

Question

Quizplus · Accepted Answer

Market values reflect current market conditions and incorporate all available information, while book values are based on historical costs and do not necessarily reflect current market conditions or future prospects. Therefore, financial economists prefer to use market values when measuring debt ratios to obtain a more accurate picture of a company's financial position.

Financial Economists Prefer to Use Market Values Rather Than Book