Which of the following statements is an accurate interpretation of the debt ratio?
A) A debt ratio of 0.60 or lower is considered a high-risk ratio.
B) A debt ratio above 1.00 is considered a good, safe ratio.
C) A debt ratio of 2.0 indicates very strong ability to pay liabilities.
D) A debt ratio of 0.60 or lower is a good, safe ratio.

Question

Quizplus · Accepted Answer

A debt ratio of 0.60 or lower is considered a low risk ratio as it indicates that a company is financing a smaller portion of assets through debt and relies more on equity. A higher debt ratio means a company is more highly leveraged and may have difficulty meeting its debt obligations. Therefore, a debt ratio of 0.60 or lower is a good and safe ratio. Options A, B, and C are not accurate interpretations of the debt ratio.

Which of the Following Statements Is an Accurate Interpretation of the Debt