The higher the debt-to-net worth ratio,the lower the degree of protection afforded creditors should the business fail.

Question

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A high debt-to-net worth ratio indicates that the business has borrowed a significant amount of money in relation to its equity. This means that there is less equity available to repay creditors in the event of the business failing. Therefore, a high debt-to-net worth ratio lowers the degree of protection for creditors.

The Higher the Debt-To-Net Worth Ratio,the Lower the Degree of Protection