Which of the following is not correct with respect to the debt to assets ratio? Multiple...
Which of the following is not correct with respect to the debt to assets ratio?
Multiple Choice
A. Cyclical companies (those whose sales fluctuate widely due to changing economic conditions) generally have a higher debt to assets ratio.
B. Cyclical companies (those whose sales fluctuate widely due to changing economic conditions) generally have a smaller debt to assets ratio.
C. A high debt ratio increases long-term solvency risk.
D. The percentage of long-term debt to assets would be higher for a utility company than for a retailer.
Homework Answers
| Cyclical companies (those whose sales fluctuate widely due to changing economic conditions) generally have a smaller debt to assets ratio is not correct. |
| Debt to assets ratio indicates the proportion of total assets of a company financed by debt. |
| Cyclical companies have a higher debt to assets ratio as they depend more on debt financing. |
| The higher the debt ratio, the higher is the solvency risk. |
| Option B should be selected |
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