Which of the following statements is true of the debt to equity ratio?
A)The higher the debt to equity ratio, the lower the company's financial risk.
B)The higher the debt to equity ratio, the greater the company's financial risk.
C)If the debt to equity ratio is greater than 1, then the company is financing more assets with equity than with debt.
D)If the debt to equity ratio is less than 1, then the company is financing more assets with debt than with equity.

Question

Quizplus · Accepted Answer

The higher the debt to equity ratio, the greater the company's financial risk. This is because a high debt to equity ratio indicates that the company is relying more on debt to finance its operations, which increases the risk of default if the company experiences financial difficulties or a downturn in its business. On the other hand, a lower debt to equity ratio indicates that the company has a stronger equity position and is less reliant on debt financing.

Which of the Following Statements Is True of the Debt