All of the following statements regarding the ratio of liabilities to owner's equity are true except
A) a ratio of 1 indicates that liabilities equal owner's equity
B) corporations can use this ratio but substitute total stockholders' equity for total owner's equity
C) the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors
D) the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors

Question

Quizplus · Accepted Answer

C) The higher this ratio, the more leveraged a company is, indicating it may have higher risk due to increased debt. A lower ratio suggests a stronger financial position with less reliance on debt.

All of the Following Statements Regarding the Ratio of Liabilities