The Debt Ratio Is One Indication of the Ability of a Company

question 189

True/False

The debt ratio is one indication of the ability of a company to fulfill its obligation to repay liabilities.

---

Definitions:

Production Capacity

The maximum output a company can produce in a given period under normal circumstances.

Variable Manufacturing Costs

Costs that vary directly with the level of production output, including raw materials, direct labor, and variable overhead expenses.

Operating Income

Earnings before interest and taxes (EBIT), an indicator of a company’s profitability from its core business operations.

Fixed Overhead

Costs that do not change with the level of output, including rent, salaries, and insurance premiums.