All of the following statements accurately describe the debt ratio except.
A) The dividing line for a high and low ratio varies from industry to industry.
B) The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.
C) A relatively high ratio is always desirable.
D) Many factors such as a company's age, stability, profitability and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
E) It is of use to both internal and external users of accounting information.

Question

Quizplus · Accepted Answer

A relatively high debt ratio may indicate that a company has a high level of debt compared to its assets, which can be risky and undesirable for the company. A low debt ratio is generally considered better. Therefore, statement C is incorrect as it implies that a high ratio is always desirable.

All of the Following Statements Accurately Describe the Debt Ratio