All of the Following Statements Accurately Describe the Debt Ratio

question 207

Multiple Choice

All of the following statements accurately describe the debt ratio except.

• A) The dividing line for a high and low ratio varies from industry to industry.
• B) The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.
• C) A relatively high ratio is always desirable.
• D) Many factors such as a company's age, stability, profitability and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
• E) It is of use to both internal and external users of accounting information.

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Definitions:

Selling Price

The amount of money for which a product or service is sold to the customer.

Contribution Margin

The selling price per unit, minus the variable cost per unit, which helps in determining the profitability of products.

Break-even Chart

A graphical representation that shows the point at which total costs and total revenue are equal, indicating no net loss or gain.

Total Revenue

The total amount of money generated by a business from its sales of goods or services before any expenses are subtracted.