If a Firm Has a Debt to Owners' Equity Ratio

question 1

Multiple Choice

If a firm has a debt to owners' equity ratio of .54 (or 54%) 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 54% of its gross profit.

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Definitions:

Managerial Accounting

The practice of analyzing, interpreting, and communicating financial information to managers for the purposes of business decision-making.

GAAP

Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting used in any given jurisdiction, specifically the U.S.

FASB Statements

Formal documents issued by the Financial Accounting Standards Board, setting forth standards and principles for financial accounting and reporting in the U.S.

AICPA Accounting Interpretations

Formal explanations and clarifications issued by the American Institute of Certified Public Accountants regarding specific accounting issues.