Question: What does the debt-to-equity ratio measure?
Options:
Liquidity
Profitability
Leverage
Efficiency
Correct Answer: Leverage
Solution:
The debt-to-equity ratio measures a company\'s financial leverage by comparing its total liabilities to its shareholders\' equity.
What does the debt-to-equity ratio measure?
Practice Questions
Q1
What does the debt-to-equity ratio measure?
Liquidity
Profitability
Leverage
Efficiency
Questions & Step-by-Step Solutions
What does the debt-to-equity ratio measure?
Step 1: Understand what 'debt' means. Debt refers to the money a company owes to others, which is called liabilities.
Step 2: Understand what 'equity' means. Equity refers to the money that belongs to the shareholders, which is their ownership in the company.
Step 3: Know that the debt-to-equity ratio is a formula. It is calculated by dividing total liabilities (debt) by total equity.
Step 4: Realize that this ratio shows how much debt a company has for every dollar of equity. A higher ratio means more debt compared to equity.
Step 5: Understand that this ratio helps investors see how risky a company is. If a company has a lot of debt, it may be riskier.
Debt-to-Equity Ratio – A financial metric that indicates the relative proportion of a company's debt to its shareholders' equity, reflecting financial leverage.
Soulshift Feedback×
On a scale of 0–10, how likely are you to recommend
The Soulshift Academy?
