Trends in Ratios That Measure the Relationship Between Debt and Equity

question 38

Multiple Choice

Trends in ratios that measure the relationship between debt and equity provide information about which (if any) of the following?
I. Long term stability
II. Degree of risk in using debt financing
III. Margin of safety to creditors in the event of liquidation

• A) None.
• B) I and II only
• C) II and III only
• D) I, II and III

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Definitions:

Budgeted Sales Data

Predictions or estimates of the sales, both in units and financial terms, that a company expects to achieve in a future period.

Sales On Account

Transactions where goods or services are sold with the agreement that payment will be made at a later date, typically recorded as accounts receivable.

Production Budget

A financial plan that estimates the number of units to be produced in a future period, based on sales forecasts and inventory levels.

Sales Budget

A financial plan that estimates the expected revenues from sales over a specific period.