A note of caution in interpreting the debt ratio is that
A)All debt decreases liquidity ratios.
B)Financing arrangements,such as leases,may be off-balance sheet arrangement and not be classified as debt on the balance sheet.
C)Financing arrangements,such as leases,may be classified as debt when in fact they do not require interest payments.
D)Long-term debt may be inflated because of a desire to reduce the current ratio.

Question

Quizplus · Accepted Answer

The debt ratio may not accurately reflect the amount of debt a company has if they have off-balance sheet arrangements, such as leases, that are not classified as debt on the balance sheet. This can lead to an underestimation of the company's true debt level and may skew the interpretation of the debt ratio.

A Note of Caution in Interpreting the Debt Ratio Is