Question

Tell the what liability ratios mean. explain detailed way

Answer 1

Liabilities ratio will mean that the overall liabilities which represents the exposure of the firm because these liability can be represented at times through debt capital in company or current liabilities in the company

These debt capital or debt ratio are also a representation of the overall liability of a firm because this has to be repaid back after a certain point of time and the lower these ratios to the firm, it will mean that the better it is for the firm, in order to maximize its overall rate of return and minimise its overall risk, so the company would be looking to minimising the liability ratio under any scenario to gain a competitive advantage.

Liability ratio should be curtailed to the maximum extent by any company in order to maximize the flexibility in its operation and to have a low debt repayment schedule as it can be reflected that debt to equity ratio,when it is lower, it is better for the firm.