The financial structure of an entity can be assessed using the:
A) current ratio.
B) quick asset ratio.
C) times interest earned.
D) debt to equity ratio.

Question

Quizplus · Accepted Answer

The debt to equity ratio is the most appropriate measure for assessing the financial structure of an entity as it shows the proportion of debt to equity financing. A high debt to equity ratio indicates a company is using relatively more debt financing than equity financing, which increases its financial risk. A low debt to equity ratio indicates a company is using more equity financing than debt financing, which reduces its financial risk. The other ratios listed (current ratio, quick asset ratio, and times interest earned) are important measures of liquidity or solvency, but they do not provide insight into the financial structure of the entity.

The Financial Structure of an Entity Can Be Assessed Using