Which company has a higher reliance on debt to support operations: Widget,with a debt ratio of 2; Mouse Trap,with a current ratio of 1.7; Gadget,with a current ratio of 1.6; or Better Trap,with a current ratio of 1.5?
A)Widget
B)Mouse Trap
C)Gadget
D)Better Trap

Question

Quizplus · Accepted Answer

The debt ratio of 2 indicates that Widget has twice as much debt as equity to support its operations, which means that Widget has a higher reliance on debt compared to the other companies mentioned. Current ratio measures a company's ability to pay its current liabilities with its current assets, but it does not take into account the amount of debt a company has. Therefore, Mouse Trap, Gadget, and Better Trap's current ratios are not relevant in determining which company has a higher reliance on debt.

Which Company Has a Higher Reliance on Debt to Support