Trends in ratios that measure the relationship between debt and equity provide information about which (if any) of the following?
I. Long term stability
II. Degree of risk in using debt financing
III. Margin of safety to creditors in the event of liquidation
A) None.
B) I and II only
C) II and III only
D) I, II and III

Question

Quizplus · Accepted Answer

Ratios that measure the relationship between debt and equity, such as the debt-to-equity ratio, provide insights into a company's long-term stability (I), the degree of risk associated with its use of debt financing (II), and the margin of safety available to creditors in the event of liquidation (III). These ratios are key indicators of financial health and risk.

Trends in Ratios That Measure the Relationship Between Debt and Equity