What does the debt-to-equity ratio show?
A) The proportion of a company's total financing that is accomplished by borrowing
B) The amount of profit earned by one share of common stock
C) The ability of a company to pay off its current liabilities
D) The potential for growth in the price of a share of stock

Question

Quizplus · Accepted Answer

The debt-to-equity ratio shows the proportion of a company's total financing that is accomplished by borrowing. It is calculated by dividing a company's total liabilities by its shareholders' equity. A higher debt-to-equity ratio indicates that a company has taken on more debt to finance its operations, while a lower ratio indicates a more conservative financing strategy.

Answer: C
 The debt-to-equity ratio does not directly show the amount of profit earned by one share of common stock (B) or the potential for growth in the price of a share of stock (D). While a low debt-to-equity ratio can be an indication of financial stability and may make a company more attractive to investors, that ratio alone does not provide information about future growth potential.

What Does the Debt-To-Equity Ratio Show