If a Firm Has a Debt to Owners' Equity Ratio

question 124

Multiple Choice

If a firm has a debt to owners' equity ratio of .75 (or 75%) we can conclude that

• A) it has relied more on debt than equity to finance its operations.
• B) the firm is likely to have trouble paying its short-term debts when they come due.
• C) its total liabilities are less than its owners' equity.
• D) the firm has expenses that are exactly 75% of its gross profit.

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Definitions:

Current Ratio

A financial ratio indicating a firm's capacity to settle short-term debts using its current assets.

Current Liabilities

Obligations or debts that a company expects to pay or settle within one year or its operating cycle, whichever is longer.

Current Assets

Assets that a company expects to convert into cash, sell, or consume within one year or its operating cycle, whichever is longer.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate the relative value of company shares.