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Question

A company can improve (lower) its debt-to-total assets ratio by doing which of the following

A Borrow more Correct Answer Incorrect Answer
B Shift short-term to long-term debt Correct Answer Incorrect Answer
C Shift long-term to short-term debt Correct Answer Incorrect Answer
D Sell common stock Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

The debt-to-total assets ratio is a measure of a company's financial leverage and indicates the proportion of its assets financed by debt. A lower ratio implies lower financial risk and a stronger financial position. Selling common stock, which represents equity financing, can improve the debt-to-total assets ratio. By selling common stock, a company can raise additional funds without increasing its debt levels.

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