All of the following statements accurately describe the debtratio except.Multiple ChoiceIt is of...

All of the following statements accurately describe the debt ratio except.

Multiple Choice

It is of use to both internal and external users of accounting information.
A relatively low ratio signifies lower risk.
The ratio is computed by dividing total liabilities by total assets.
Higher financial leverage means greater risk.
The ratio is computed by dividing total equity by total liabilities.

Solutions

Expert Solution

Inaccurate Statement : The ratio is computed by dividing total equity by total liabilities.

Explanation:

All the statements accurately describe the debt ratio except the statement which says that the ratio is computed by dividing total equity by total liabilities, whereas the actual formula for calculating the debt ratio is give below:

Debt ratio = Total Liabilities / Total Assets.

It means that debt ratio is computed by dividing total liabilities by total assets.

ekkarill92 answered 1 year ago

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