Which ratio measures a company's ability to meet its long-term debt obligations?a.Acid-test ratiob.Current ratioc.Debt-to-equity ratiod.Return on equity ratio
Question
Which ratio measures a company's ability to meet its long-term debt obligations?a.Acid-test ratiob.Current ratioc.Debt-to-equity ratiod.Return on equity ratio
Solution
The ratio that measures a company's ability to meet its long-term debt obligations is the Debt-to-equity ratio (option c). This ratio is calculated by dividing a company's total liabilities by its shareholder equity. It provides a snapshot of a company's financial leverage and indicates the proportion of funding the company has received from debt and equity. A high debt-to-equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings. On the other hand, a low debt-to-equity ratio indicates a more financially stable business.
Similar Questions
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