Which of the Following Statements Is an Accurate Interpretation of a Debt

question 11

Multiple Choice

Which of the following statements is an accurate interpretation of a debt ratio of .60?

• A) The company has $.60 of current liabilities for every $1.00 of current assets.
• B) The company has $.60 of assets for every $1.00 of liabilities.
• C) The company has $.60 of current assets for every $1.00 of current liabilities.
• D) The company has $.60 of liabilities for every $1.00 of assets.

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Definitions:

Quick Ratio

A measure of a company's ability to meet its short-term obligations with its most liquid assets, excluding inventory.

Debt Ratio

A leverage ratio that measures the proportion of a firm’s total assets that is acquired with borrowed funds.

Current Liabilities

Debts or obligations that a company needs to pay within one fiscal year or within its normal operating cycle.

Statement of Cash Flows

A financial document that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.