📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!
  • google app store apple app store
    • ✖

      Question

      PQR Ltd has the following information. Accounts Analyst

      has been asked to submit the report of the basis of given information                                                                   2020-21                    2019-20            2018-19 Total Debt (Rs)        500000                      450000             370000 Total Equity(Rs)       800000                     870000             900000 What will the Analyst conclude in his/her report?
      A The company is becoming less solvent as evidenced by the increase in its debt-to-equity ratio from 0.411 to 0.625 from 2018-19 to 2020-21 Correct Answer Incorrect Answer
      B The company is becoming less liquid as evidenced by the increase in its debt-to-equity ratio from 0.411 to 0.625 from 2018-19 to 2020-21 Correct Answer Incorrect Answer
      C The company is becoming less profitable as evidenced by the increase in its debt-to-equity ratio from 0.411 to 0.625 from 2018-19 to 2020-21 Correct Answer Incorrect Answer
      D The company is becoming more solvent as evidenced by the increase in its debt-to-equity ratio from 0.411 to 0.625 from 2018-19 to 2020-21 Correct Answer Incorrect Answer
      E Nothing can be inferred from the above information Correct Answer Incorrect Answer

      Solution

      Debt to equity ratio signifies the solvency of a firm. If debt to equity increases it puts a company in a difficult situation as interest on debt is a mandatory payment which has to be paid irrespective of the profits made. Therefore, this ratio determines the solvency position of a firm. If it increases, it makes the firm less solvent.

      Practice Next
      More RBI and Monetary Policy Questions

      Relevant for Exams:

      ask-question