The debt-to-equity ratio:
A) Is not relevant to secured creditors.
B) Is calculated by dividing book value of secured liabilities by book value of pledged assets.
C) Can always be calculated from information provided in a company's income statement.
D) Must be calculated from the market values of assets and liabilities.
E) Is a means of assessing the risk of a company's financing structure.

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is a financial ratio that compares a company's total debt to its total equity. It is a means of assessing the risk of a company's financing structure, indicating how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity. This information helps investors and creditors assess the degree of risk associated with a business's capital structure, which can influence the cost of capital and the company's ability to secure future financing.

The Debt-To-Equity Ratio