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, the company is financing more assets with equity than with debt.
D) If the debt to equity ratio is less than 1, the company is financing more assets with debt than with equity.

Question

Quizplus · Accepted Answer

The debt to equity ratio measures the proportion of a company's financing that comes from debt versus equity. A higher debt to equity ratio indicates that the company is relying more heavily on debt to finance its operations, which increases the company's financial risk. Therefore, statement B is true. Statements A, C and D are false.

Which of the Following Statements Is TRUE of the Debt