A note of caution in interpreting the debt ratio is that
A)all debt decreases liquidity ratios.
B)financing arrangements, such as leases, may be off-balance sheet arrangement and not be classified as debt on the balance sheet.
C)financing arrangements, such as leases, may be classified as debt when in fact they do not require interest payments.
D)long-term debt may be inflated because of a desire to reduce the current ratio.

Question

Quizplus · Accepted Answer

Financing arrangements like leases can indeed be off-balance sheet, meaning they do not appear as debt on the balance sheet, which can lead to an underestimation of a company's total leverage when just looking at the debt ratio.

A Note of Caution in Interpreting the Debt Ratio Is