Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Debt to Equity Ratio

Financial Accounting

14. Financial Statement Analysis

Ratios: Debt to Equity Ratio

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Multiple Choice

The debt-to-equity ratio is a measure of solvency that takes total ______ divided by total equity.

liabilities

expenses

revenues

assets

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Verified step by step guidance

Understand the concept of the debt-to-equity ratio: It is a solvency measure that indicates the proportion of a company's financing that comes from debt versus equity. The formula is Debt-to-Equity Ratio = Total Liabilities / Total Equity.

Identify the components of the formula: The numerator represents total liabilities, which include all obligations the company owes, such as loans, accounts payable, and other debts. The denominator represents total equity, which is the residual interest in the assets of the company after deducting liabilities.

Analyze the options provided: 'Liabilities' aligns with the numerator of the formula, as it represents the debt portion. 'Expenses,' 'revenues,' and 'assets' do not fit the formula for the debt-to-equity ratio.

Confirm the correct answer: Based on the formula, the correct term to complete the sentence is 'liabilities,' as the debt-to-equity ratio is calculated by dividing total liabilities by total equity.

Apply the formula in practice: To calculate the debt-to-equity ratio for a company, gather the values for total liabilities and total equity from the balance sheet, then divide the liabilities by the equity using the formula.