Which of the Following Statements About the Debt-To-Equity Ratio Is

question 19

Multiple Choice

Which of the following statements about the debt-to-equity ratio is NOT true?

• A) A high ratio indicates that the company is highly geared.
• B) From a creditor's point of view,a higher measure is desirable.
• C) The debt-to-equity ratio indicates the proportion of borrowing to owners' investment.
• D) The debt-to-equity ratio shows the degree of risk borne by the creditors vis-à-vis the shareholders.

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Definitions:

Variable Costs

Expenses that vary in direct proportion to changes in production or sales volume, such as raw materials and direct labor costs.

Sales

Revenue generated from goods or services exchanged by an entity during its normal business operations.

Break-even Analysis

An assessment to determine the sales volume at which total revenues equal total costs, indicating no net loss or gain.

Cost-volume-profit Analysis

An accounting technique that analyzes how changes in costs, sales volume, and price affect a company's profit.