A Decrease in the Ratio of Liabilities to Stockholders' Equity

question 43

True/False

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

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Definitions:

Preferred Shares

Type of ownership in a corporation that has a higher claim on its assets and earnings than common shares, often with fixed dividends.

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Acquisition

The process of acquiring control of a company by purchasing its shares or assets, effectively resulting in a change of ownership.

Restricted Shares

types of stock which are subject to certain restrictions, typically related to the vesting period, and are not fully transferrable until certain conditions are met.