Question : If debt equity ratio exceeds______, it indicates risky financial position.
Option 1: 1:1
Option 2: 2:1
Option 3: 1:2
Option 4: 3:1
Correct Answer: 2:1
Solution : If the debt-equity ratio exceeds 2:1, it indicates a risky financial position.
Hence the correct answer is option 2.
Question : If the debt-equity ratio is 0.43: 1. What will the ratio indicate with respect to the company's financial position?
Option 1: It indicates that the long-term financial position of the company is very sound
Option 2: It indicates that the long-term financial position of the company is weak
Option 3: It indicates that the short term financial position of the company is very sound
Option 4: It indicates that the short-term financial position of the company is very weak
Question : Which of the following statements is incorrect?
Option 1: Debt equity ratio is calculated to assess the ability of the firm to meet its long-term liabilities.
Option 2: If the debt-equity ratio is more than that, it shows a rather risky financial position from the long-term point of view.
Option 3: debt-equity ratio of 1: 1 is considered safe.
Option 4: A high debt-equity ratio is a danger signal for long-term lenders.
Question : What does a high debt-to-equity ratio suggest about a risky financial situation?
Option 1: 3: 1
Option 2: 1: 2
Option 3: 1: 1
Option 4: 2: 1
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