Most companies
A)agree that a current ratio of 0.75 is sufficient for business operations.
B)try to maintain protection from creditors by keeping only a small amount of cash available.
C)are not concerned with the debt management ratios when cash flows are good.
D)strive for an appropriate balance between debt and equity financing.

Question

Quizplus · Accepted Answer

Most companies strive to maintain an appropriate balance between debt and equity financing, as too much debt can lead to financial distress, while too much equity can result in a low return on investment for shareholders. Therefore, debt management ratios are crucial in achieving this balance, and companies must closely monitor their debt levels to maintain financial stability. Choices A and B are incorrect as a current ratio of 0.75 may not always be sufficient, and keeping a small amount of cash available may not provide adequate protection from creditors. Choice C is also incorrect as debt management ratios are important even when cash flows are good, as they help determine the level of financial risk the company is exposed to.

Most Companies