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

Which ratio measures the proportion of a company's total liabilities to its shareholders' equity?

Return on Equity

Current Ratio

Debt to Equity Ratio

Inventory Turnover Ratio

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Verified step by step guidance

Step 1: Understand the concept of the Debt to Equity Ratio. This ratio measures the proportion of a company's total liabilities (debt) to its shareholders' equity. It is a key indicator of financial leverage and risk.

Step 2: Recall the formula for the Debt to Equity Ratio: \( \text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Shareholders' Equity}} \). This formula expresses how much debt the company is using to finance its assets relative to the equity provided by shareholders.

Step 3: Compare the Debt to Equity Ratio with other ratios mentioned in the problem: Return on Equity measures profitability, Current Ratio measures liquidity, and Inventory Turnover Ratio measures efficiency in managing inventory. None of these directly measure the proportion of liabilities to equity.

Step 4: Recognize that the Debt to Equity Ratio is the correct answer because it specifically addresses the relationship between liabilities and shareholders' equity, which is the focus of the question.

Step 5: Apply this understanding in practice by calculating the Debt to Equity Ratio for a company using its financial statements. Locate the Total Liabilities and Shareholders' Equity on the balance sheet, and use the formula to compute the ratio.