The debt ratio of Company A is 0.31 and the debt ratio of Company B is 0.21.Based on this information,an investor can conclude:
A)Company B has more debt than Company A.
B)Company B has less financial leverage.
C)Company A has less financial leverage.
D)Company A has 10% more assets than Company B.
E)Both companies have too much debt.

Question

Quizplus · Accepted Answer

The debt ratio is calculated as total debt divided by total assets, indicating the proportion of a company's assets that are financed through debt. A lower debt ratio (0.21 for Company B vs. 0.31 for Company A) suggests that Company B uses less debt relative to its assets, implying less financial leverage.

The Debt Ratio of Company a Is 0