A debt to total assets ratio of 80%: Group of answer choices means that 20% of investment in assets has been provided by lenders. is undesirable for creditors. is desirable for creditors. is likely to be supported by cyclical entities that have fluctuating profits, such as many high-tech companies.
Question
A debt to total assets ratio of 80%: Group of answer choices
means that 20% of investment in assets has been provided by lenders.
is undesirable for creditors.
is desirable for creditors.
is likely to be supported by cyclical entities that have fluctuating profits, such as many high-tech companies.
Solution
A debt to total assets ratio of 80%:
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Does not mean that 20% of investment in assets has been provided by lenders. This statement would be true if the debt to total assets ratio was 20%. In this case, the ratio is 80%, which means that 80% of the assets are financed by debt.
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It could be undesirable for creditors. A high debt to total assets ratio could indicate that a company is heavily financed by debt, which could be risky for creditors if the company is unable to meet its debt obligations.
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It is not necessarily desirable for creditors. While creditors do want to be paid back, a high debt ratio can indicate financial instability, which could increase the risk of default.
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It is not necessarily likely to be supported by cyclical entities that have fluctuating profits, such as many high-tech companies. While some companies with fluctuating profits might have a high debt to assets ratio, it's not a given. The ratio can vary widely depending on the company's business model, industry, and other factors.
Similar Questions
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