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    Question

    The Debt-to-Equity (D/E) ratio is an important measure

    in finance. What does it indicate?
    A Liquidity position of a firm Correct Answer Incorrect Answer
    B Ability to cover interest obligations Correct Answer Incorrect Answer
    C Proportion of borrowed funds to shareholders’ funds Correct Answer Incorrect Answer
    D Short-term solvency of a company Correct Answer Incorrect Answer
    E Return on total assets Correct Answer Incorrect Answer

    Solution

    The Debt-to-Equity ratio = Total Debt ÷ Shareholders’ Equity, showing the firm’s leverage. A higher ratio means greater reliance on debt financing, increasing financial risk.

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