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:

Foreclosure Action

A legal process by which a lender seeks to recover the balance of a loan from a borrower who has stopped making payments.

Right of Action

The legal right to sue or pursue litigation in order to enforce or defend a right or claim.

Equity of Redemption

The right of a mortgagor to redeem their property once the debt secured by the mortgage is fully paid.

Foreclosure Proceedings

Legal processes initiated by lenders to seize and sell property when borrowers fail to repay their mortgage loans.