Question : The total assets of this company are 4 times in comparison to the long-term debts of the company. What does it indicate?
Option 1: higher security to lenders
Option 2: Lesser security to lenders
Option 3: Higher security to shareholders
Option 4: Lesser security to shareholder
Correct Answer: higher security to lenders
Solution :
Answer =
higher security to lenders.
A higher total Assets to debt Ratio implies the use of lower debt in financing the Assets which means, a larger safety margin for Lenders. When the total assets of a company are four times greater than its long-term debts, it indicates a higher level of security to lenders because there are more assets available to cover the debts, reducing the lender's risk.
Hence, the correct option is 1.




