alleryDebt-Equity Ratio is calculated as
ANet Profit / Total Assets
BCurrent Assets / Current Liabilities
CSales / Capital
DTotal Debt / Shareholders Funds
Answer & Solution
Correct answer: D. Total Debt / Shareholders Funds
1. Debt-Equity Ratio measures long-term solvency.
2. Formula: Total Debt (long-term liabilities) / Shareholders Funds.
3. Lower ratio is considered safer; an ideal benchmark is 2:1 or less.
4. Hence (A) is correct.
_Source: Maharashtra Balbharati Std XII Book-Keeping & Accountancy, Ch 9 "Analysis of Financial Statements", §9.4 ¶§9.4_
Keep practising Analysis of Financial Statements
Browse all Analysis of Financial Statements questions for AP Intermediate 2nd Year, or explore more Accountancy topics.
Related questions
An investor divides profit available to common shareholders by the shares outstanding. ThaThree profitability measures are named together: return on total assets, return on equity A manager wants to know how hard the asset base is working to produce sales. She should usOperating efficiency ratios include total asset turnover, inventory turnover, days' sales A ratio checks whether a firm can cover its interest expense as it falls due. That ratio iTwo ratios are named for assessing solvency: debt-to-equity and:Lenders often look at the ratio built on the single most liquid asset a company holds. ThaA stricter test strips inventory and prepaid expenses out of current assets. That test is