If Company A has a debt-to-assets ratio of 0.73 while Company B has a debt-to-assets ratio of 0.45,which of the following statements is correct?
A)Stockholders own a smaller proportion of Company A than Company B.
B)Company A must make less profit than Company B.
C)Creditors own a smaller proportion of Company A than Company B.
D)Company A must have fewer assets than Company B.

Question

Quizplus · Accepted Answer

The debt-to-assets ratio indicates the percentage of assets financed by debt.Since Company A has a higher ratio than Company B,that means more of Company A's assets are financed with debt than Company B.This ratio says nothing about profit.The amount of Company A's assets could be higher than Company B,but not necessarily.It is the relationship of debt-to-assets that is measured in the ratio,not the absolute dollar amount.

If Company a Has a Debt-To-Assets Ratio of 0