The debt ratio is used to
A)Measure the relationship of equity to debt
B)Describe the risk associated with a company's debts
C)Is used only by banks when a business applies for a loan
D)Measure the relationship of equity to debt and describe the risk associated with a company's debts
E)Describe the risk associated with a company's debts and is used only by banks when a business applies for a loan

Question

Quizplus · Accepted Answer

The debt ratio is a financial ratio that measures the extent of a company’s leverage. Specifically, it indicates what proportion of a company's assets are financed through debt. By doing so, it helps describe the risk associated with a company's debts, as a higher debt ratio could imply higher financial risk. Choices A, C, D, and E either partially misrepresent the use of the debt ratio or include incorrect applications.

The Debt Ratio Is Used to