The debt ratio is used: Question 23 options: To measure the ratio of equity to expenses. To assess the risk associated with a company's use of liabilities. Only by banks when a business applies for a loan. To determine how much debt a firm should pay off. To determine how much debt a company should borrow.

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Business

9 January, 10:56

The debt ratio is used: Question 23 options: To measure the ratio of equity to expenses. To assess the risk associated with a company's use of liabilities. Only by banks when a business applies for a loan. To determine how much debt a firm should pay off. To determine how much debt a company should borrow.

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Taylor Henry · Answer 1

To assess the risk associated with a company's use of liabilities

Explanation:

The formula for debt = total liabilities/equity

It is evident from the formula above that debt ratio does not measure the ratio of equity to expenses, neither does it determine the amount of debt that could be borrowed.

In actual fact, it measures the risk inherent in making use of debt as a source of finance instead of equity.