The debt ratio helps to assess the risk a company has of failing to pay its...
The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.
True
OR
False
Homework Answers
Solution:
True.
Explanation:
Formula for debt ratio=Total Debts / Total assets
Total Debts= Debentures+Mortgage Loan+BankLoan+Loan from Financial /institution etc.
Total Assets=Current Assets+fixed Assets.
The debt ratio indicates margin of safety available to providers of Long term Loans.A higher total assets to debt ratio implies the use of lower debts in financing the assets which means a larger safety margin for lenders.
While a low ratio shows risky financial position as it implies the use of higher debts.
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