The debt ratio and the long-term debt to equity ratio help interested parties evaluate ______.
A) how effectively management uses the firm's resources
B) a firm's ability to meet its short-term obligations
C) how much a firm relies on debt financing
D) the ability to generate revenues that are greater than its operating costs and other expenses

Question

Quizplus · Accepted Answer

The debt ratio and long-term debt to equity ratio are both measures of a company's leverage, or how much it relies on debt financing. The debt ratio is total debt divided by total assets, while the long-term debt to equity ratio is long-term debt divided by equity. Both ratios give insight into a company's ability to pay back its debts and the level of risk associated with investing in the company.

The Debt Ratio and the Long-Term Debt to Equity Ratio