All of the Following Statements Regarding the Ratio of Liabilities

question 210

Multiple Choice

All of the following statements regarding the ratio of liabilities to stockholders' equity are true except

• A) a ratio of 1 indicates that liabilities equal stockholders' equity
• B) sole proprietorships can use this ratio but substitute total owner's equity for total stockholders' equity
• C) the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors
• D) the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors

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Definitions:

Money Market

A segment of the financial market in which financial instruments with high liquidity and short maturities are traded.

Interest Rate Risk

The potential for investment losses due to changes in interest rates.

Marketable Securities Portfolio

This refers to a collection of liquid financial instruments that a company or individual holds, which can be quickly sold in the market to raise cash.