Question: What does a debt-to-equity ratio of 1 indicate?
Options:
Equal financing from debt and equity
More equity than debt
More debt than equity
No debt
Correct Answer: Equal financing from debt and equity
Solution:
A debt-to-equity ratio of 1 indicates that a company has equal financing from debt and equity.
What does a debt-to-equity ratio of 1 indicate?
Practice Questions
Q1
What does a debt-to-equity ratio of 1 indicate?
Equal financing from debt and equity
More equity than debt
More debt than equity
No debt
Questions & Step-by-Step Solutions
What does a debt-to-equity ratio of 1 indicate?
Step 1: Understand what debt means. Debt is money that a company borrows and needs to pay back.
Step 2: Understand what equity means. Equity is money that comes from the owners or shareholders of the company.
Step 3: Know what the debt-to-equity ratio is. It compares the amount of debt to the amount of equity.
Step 4: A debt-to-equity ratio of 1 means the amount of debt is equal to the amount of equity.
Step 5: This means for every dollar of debt, there is one dollar of equity.
Debt-to-Equity Ratio – A financial ratio that compares a company's total liabilities to its shareholder equity, indicating the proportion of debt and equity used to finance the company's assets.
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