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      Question

      A creditor would be happy if there is a decrease in a

      ratio of:
      A debt to total assets ratio Correct Answer Incorrect Answer
      B return on equity Correct Answer Incorrect Answer
      C return on assets Correct Answer Incorrect Answer
      D interest coverage Correct Answer Incorrect Answer
      E none of the above Correct Answer Incorrect Answer

      Solution

      A creditor would be happy if debt position of a firm is stable. Only then, it will ensure recovery of his own debt. If debt of any firm rises over and above its assets then due to increase in interest and principal obligations, it will struggle harder to maintain profits. This can endanger the interest payment to a creditor. Therefore, this ratio holds importance for a creditor. Rest other ratios, decrease in them will bring only negative news.

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