Debt-Utilization Ratios Provide an Indication of the Way the Firm

question 10

True/False

Debt-utilization ratios provide an indication of the way the firm is financed between debt (lenders) and equity (owners), and therefore helps the analyst determine the amount of financial risk present in the firm.

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Definitions:

Utility Function

A mathematical representation of how a consumer's preferences over bundles of goods relate to their satisfaction or utility.

Consumption

The use of goods and services by households or individuals, which is a primary component of economic activity.

Income

The cash flow generated out of work or investments, typically on a steady basis.

Utility Function

A mathematical representation of a consumer's preference ranking over bundles of goods, showing the level of satisfaction or utility derived.