Question

The Total Debt to Total Capital ratio is an effective type of debt management ratio because...

The Total Debt to Total Capital ratio is an effective type of debt management ratio because it gives an idea of

A. how profitably the firm is operating and utilizing its assets.

B. the firm’s ability to pay off debts that are maturing within a year.

C. how the firm has financed its assets as well as the firm’s ability to repay its long-term debt.

D. how efficiently the firm is using its assets.

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Answer #1

Answer:C.how the firm has financed its assets as well as the firms ability to repay its long term debt

The total debt to total capital ratio which is expressed as Total debt(long term debt +Current Liabilities)/Total capital,indicates the firms ability to repay its debts and also how the assets of the firm have been financed.Lets say the Total Debt to Total Capital Ratio =.30 or 30% That means that 30% of the firms total capital structure is debt.

other options explained

A.how profitably the firm is operating and utilizing its assets

Profitability ratio indicates this .So this option is false

B.The firms ability to pay off debts that are maturing within a year

False.Liquidity ratios(current ratio quick ratio etc) measure this

d.how efficiently the firm is using its assets

False.Efficinecy ratios or Turnover ratios measure this .

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