Which statement relating to the debt ratio of a company is not true?
A) It can be calculated by relating liabilities to total funds.
B) It is an indicator of a company's long-term solvency.
C) It is a measure of the extent of a company's gearing.
D) A higher level of debt is normally preferable from a creditor's point of view.

Question

Quizplus · Accepted Answer

A higher level of debt is not normally preferable from a creditor's point of view as it increases the risk of default on the debt. A lower debt ratio is generally considered better as it indicates that the company has a lower level of financial leverage and is less risky.

Which Statement Relating to the Debt Ratio of a Company