You are a banker reviewing a loan application from a local business.Which of the following ratios would you look at to get a quick measure of the business's ability to meet its long-term financial obligations?
A) Liquidity ratio
B) Return on assets
C) Debt ratio
D) Current ratio
E) Activity ratio

Question

Quizplus · Accepted Answer

The debt ratio is a quick measure of the business's ability to meet its long-term financial obligations because it shows the proportion of the company's assets that are financed by debt. A higher debt ratio indicates that the business has more debt relative to its equity, which could make it riskier for a lender to extend a loan. A lower debt ratio suggests that the business has more equity relative to its debt, which could make it a more attractive loan applicant.

You Are a Banker Reviewing a Loan Application from a Local