Which of the following statements best compares long-term borrowing capacity ratios?
A)The debt/equity ratio is more conservative than the debt ratio.
B)The debt ratio is more conservative than the debt/equity ratio.
C)The debt/equity ratio is more conservative than the debt to tangible net worth ratio.
D)The debt to tangible net worth ratio is more conservative than the debt/equity ratio.
E)The debt ratio is more conservative than the debt to tangible net worth ratio.

Question

Quizplus · Accepted Answer

The debt to tangible net worth ratio compares total debt to tangible net worth, which is a more conservative measure than the debt/equity ratio. The debt/equity ratio compares total debt to total equity, which includes intangible assets like goodwill that may not be as reliable as tangible assets.

Which of the Following Statements Best Compares Long-Term Borrowing Capacity