Why Would a High Debt Ratio Be a Red Flag

question 115

Multiple Choice

Why would a high debt ratio be a red flag in a financial statement analysis?

• A)The company is borrowing more than it is earning.
• B)The company may be unable to pay its debts.
• C)The company is paying too much interest.
• D)Both A and B are reasons why it would be a red flag.

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Definitions:

Stimulus

An event or object that evokes a specific functional reaction in an organ or tissue.

Formal Operational Thought

A stage in Piaget's cognitive development theory (beginning around age 12) where individuals develop the ability to think abstractly, logically, and systematically.

Cognition Stage

A phase in cognitive development processes, per developmental theories, where individuals acquire, process, and utilize knowledge.

Jean Piaget

was a Swiss psychologist known for his pioneering work in child development, particularly his theory of cognitive development.