Which capital structure ratio measures total long-term debt liabilities relative to shareholders’ equity?
ADebt-to-Equity (D/E) Ratio
BCurrent Ratio
CAsset Turnover Ratio
DInterest Coverage Ratio
Explanation
* Debt-to-Equity (D/E) Ratio = Total Liabilities (or Long-term Debt) / Total Shareholders’ Equity.
* Evaluates leverage degree and long-term financial solvency risk.
* High D/E ratio indicates reliance on leverage, amplifying both returns and financial distress risk.
Exam Relevance
- Topic: Financial Statement Analysis
- Subtopic: Solvency Ratios
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