The ability of a company to pay its debts can be evaluated by using the ________.
A) earnings per share
B) return on assets ratio
C) debt ratio
D) fully diluted earnings per share

Question

Quizplus · Accepted Answer

The debt ratio measures the total amount of debt a company has compared to its assets. A lower debt ratio indicates that a company has a higher ability to pay its debts. Earnings per share and fully diluted earnings per share measure profitability, while return on assets ratio measures how efficiently a company is using its assets to generate profits. None of these methods directly measure a company's ability to pay its debts.

The Ability of a Company to Pay Its Debts Can