A decrease in the ratio of liabilities stockholders' equity indicates an improvement in the margin of safety for creditors.

Question

Quizplus · Accepted Answer

A decrease in the ratio of liabilities to stockholders' equity means that the company has less debt in proportion to its equity. This indicates that there is a larger margin of safety for creditors, as there are more assets available to cover any outstanding debts. Therefore, it is true that a decrease in this ratio indicates an improvement in the margin of safety for creditors.

A Decrease in the Ratio of Liabilities Stockholders' Equity Indicates