Question
The Debt Equity ratio of a company is 0.4. Which of the
following will change the Debt Equity Ratio?Solution
Cash received from debtors will leave the internal and external funds unchanged as this will only affect the composition of current assets. Hence, the debt-equity ratio will remain unchanged. Sale of goods on cash basis neither affects Debt nor equity. Purchase of goods on credit neither affects Debt nor equity. Redemption of debentures decrease the long-term debt thus the debt equity ratio will be lower than 0.4
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