The proportion of a firm's funds that is provided by shareholders is equal to:
A)the debt ratio minus the times interest earned.
B)1 minus the debt ratio.
C)the times interest earned plus 1.
D)the debt ratio minus the dividends paid.
E)the fixed charge coverage ratio minus 1.

Question

Quizplus · Accepted Answer

The proportion of a firm's funds that is provided by shareholders is commonly referred to as the equity ratio. This ratio can be calculated as 1 minus the debt ratio. In other words, if a company's debt ratio is 0.4 (meaning that 40% of its funds come from debt), then its equity ratio would be 1 - 0.4 = 0.6 (or 60% of its funds come from shareholders). Therefore, the best choice is B.

The Proportion of a Firm's Funds That Is Provided by Shareholders