What does a higher debt-to-equity ratio generally indicate about a business?
Correct answer: A. Greater use of borrowed funds
- A. Greater use of borrowed funds
- B. Lower use of borrowed funds
- C. Higher cash held by owners
- D. Lower value of all assets
Explanation
The debt-to-equity ratio compares financing supplied by creditors with financing supplied by owners. A higher ratio indicates greater financial leverage and may also mean greater financial risk.
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About Finance and Banking Basics
Business finance covers capital requirements, sources of funds, budgeting, cash flow, investment decisions and basic financial statements and ratios. Banking includes commercial bank functions, deposits, loans, credit creation, interest and the role of a central bank, including its monetary policy and regulatory functions.
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