Question : Assertion (A): The debt-equity ratio expresses the relationship between short-term debt and equity share capital of an enterprise.
Reason (R): It does not measure of the relative contribution of the creditors and shareholders.
Option 1: Both A and R are true and R is the correct explanation of A.
Option 2: Both A and R are true, but R is not the correct explanation of A.
Option 3: A is true, but R is false.
Option 4: A is false, but R is true.
Correct Answer:
A is true, but R is false.
Solution :
The debt-equity ratio serves as a gauge for how equally creditors and owners or shareholders contributed to the capital used by the company. The debt-equity ratio is the simple ratio of all long-term debt and equity capital in the company.
The debt-equity ratio describes the relationship between a company's short-term debt and equity share capital.
Hence, the correct option is 3.
