Accounting · Debt-Equity Ratio Concepts
Considering the Debt-Equity Ratio as a solvency metric, evaluate the following statements: Statement I: The Debt-Equity Ratio is calculated by dividing total outside liabilities including short-term bank borrowings and trade payables by total tangible net worth. Statement II: For standard banking and financial analysis, 'Debt' in this ratio typically refers only to long-term liabilities such as debentures and long-term bank loans. Statement III: A high Debt-Equity Ratio is always considered unfavorable by equity shareholders because it inevitably leads to a decrease in Return on Equity during profitable periods. Which of the statements given above is/are correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1I, II and III
- 2Only II✓
- 3Only I and II
- 4Only I
Correct answer
Only II
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