The lower the debt ratio,
A) the higher is the use of financial leverage
B) the lower is the use of financial leverage
C) the lower are the firm's total assets
D) the higher are the firm's total assets

Question

The lower the debt ratio,​
A) ​the higher is the use of financial leverage
B) ​the lower is the use of financial leverage
C) ​the lower are the firm's total assets
D) ​the higher are the firm's total assets

Quizplus · Accepted Answer

The debt ratio is calculated by dividing total liabilities by total assets. Therefore, a lower debt ratio means that a smaller portion of the firm's assets are funded by debt and a larger portion is funded by equity. This indicates a lower use of financial leverage.

The Lower the Debt Ratio,​

The Lower the Debt Ratio,