Bathlinks Corporation Has a Debt to Assets Ratio of 73

question 132

Multiple Choice

Bathlinks Corporation has a debt to assets ratio of 73%.This tells the user of Bathlinks's financial statements that

• A)Bathlinks is getting a 27% return on its assets.
• B)there is a risk that Bathlinks cannot pay its debts as they come due.
• C)73% of the assets are financed by the stockholders.
• D)based on this measure, the user should not invest in Bathlinks.

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Definitions:

Liquidating Corporation

A process wherein a company sells its assets, pays off creditors, and distributes any remaining assets to shareholders, effectively dissolving the company.

Bankruptcy and Insolvency Act

Legislation that provides the legal framework for the resolution of financial distress and insolvency situations, including the reorganization or liquidation of debtor assets.

Capital Structure

The mix of different forms of capital, such as debt, equity, and hybrid securities, used by a company to fund its operations and growth.