Is there a limit to the debt ratio's value? (select the best choice below.)

a. theoretically, the debt ratio cannot exceed 90 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

b. theoretically, the debt ratio cannot exceed 70 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

c. theoretically, the debt ratio cannot exceed 80 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

d. theoretically, the debt ratio cannot exceed 100 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ) ?

Question

Business

Karsyn Galloway

14 May, 21:23

Is there a limit to the debt ratio's value? (select the best choice below.)

a. theoretically, the debt ratio cannot exceed 90 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

b. theoretically, the debt ratio cannot exceed 70 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

c. theoretically, the debt ratio cannot exceed 80 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ).

d. theoretically, the debt ratio cannot exceed 100 %. in practice, few creditors would extend loans to companies with exceedingly high debt ratios (greater than 70 % ) ?

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Answers (1)

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Angel Clements · Answer 1

Debt ratio = Liabilities/Assets

A scenario can arise when all the assets are financed through borrowing and others debts. In such a case, debt ratio will be 100%. However, its theoretically impossible to have a debt ratio being more than 100%. A large debt ratio shows the risk at which a company is in. In practice, a debt ratio of between 60 to 70% is considered normal. Any ratio above 70% would scare investors away.

Therefore, choice d. is the best choice.