Which of the Following Statements Best Compares Long-Term Borrowing Capacity

question 19

Multiple Choice

Which of the following statements best compares long-term borrowing capacity ratios?

• A)The debt/equity ratio is more conservative than the debt ratio.
• B)The debt ratio is more conservative than the debt/equity ratio.
• C)The debt/equity ratio is more conservative than the debt to tangible net worth ratio.
• D)The debt to tangible net worth ratio is more conservative than the debt/equity ratio.
• E)The debt ratio is more conservative than the debt to tangible net worth ratio.

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Definitions:

Principal Retirement

The act of paying off the original sum of money borrowed in a loan, excluding interest payments.

Unsecured Bond

A bond not backed by collateral, relying on the issuer's creditworthiness.

Indenture

A formal legal agreement, contract, or document between two parties, especially one detailing the terms and conditions of a bond or debenture.

Debenture

A type of debt instrument that is not secured by physical assets or collateral but is backed only by the general creditworthiness and reputation of the issuer.