If a firm's total debt ratio is greater than .5, then:
A) its current liabilities are quite high.
B) its debt-equity ratio exceeds 1.0.
C) it has too few total assets.
D)it has more long-term debt than equity.

Question

Quizplus · Accepted Answer

Total debt ratio is the ratio of a firm's total liabilities to its total assets. If the total debt ratio is greater than 0.5, it means that the firm has more liabilities than assets, which suggests that the firm is highly leveraged. This also implies that the debt-equity ratio of the firm is greater than 1.0, indicating that the firm is relying more on borrowed funds (debt) than on equity capital.

If a Firm's Total Debt Ratio Is Greater Than