Traynham Tractors has a debt-to-total-assets ratio of 0.61 and Adel Automotive has 0.99. Which of the following statements is true?
A) Adel reported more dollars of profit than Traynham.
B) Adel has more total debt than does Traynham.
C) Adel is able to bring its product to market more efficiently than Traynham.
D) Traynham would likely be able to borrow money at a lower interest rate than would Adel.

Question

Quizplus · Accepted Answer

The debt-to-total-assets ratio measures the portion of a company's assets that are financed by debt. A lower ratio, like Traynham's 0.61 compared to Adel's 0.99, suggests Traynham has a healthier balance sheet and is less risky, potentially qualifying for lower interest rates. The other options cannot be determined from the debt-to-total-assets ratio alone.

Traynham Tractors Has a Debt-To-Total-Assets Ratio of 0