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 higher the debt to equity ratio, the greater the company's financial risk because it indicates that the company is relying more heavily on debt to finance its assets. This means that the company has more interest and principal payments to make, which can be difficult to manage if the company's earnings are irregular or decline. Therefore, investors generally view a high debt to equity ratio as a red flag for financial risk.

Which of the Following Statements Is True of the Debt