contestada

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) Corporation can use this ratio but subtitute total stockholder's 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.

Respuesta :

TomShelby

Answer:

(C) The higher this ratio, the better able a business is to withstand poor business conditions and pay creditors.

Explanation:

The ratio is as follow:

liabilities / equity

if the ratio is high, this means liabilities are greater than equity. The situation of the company will be more fragile, as the creditors are less flexible on their payment than investor. The lender require a certain amount of interest on specific dates, while investor may accept to not receive dividends in bad year, the interest expense can move the business to bankruptcy. This means, the Statement C is false, a higher ratio do not make the company's ability to pay their creditor more easily

Otras preguntas