Which financial metric indicates the proportion of equity and debt in a company's capital structure?a.Earnings Per Share (EPS)b.Debt-to-Equity Ratioc.Return on Investment (ROI)d.Operating Leverage
Question
Which financial metric indicates the proportion of equity and debt in a company's capital structure?a.Earnings Per Share (EPS)b.Debt-to-Equity Ratioc.Return on Investment (ROI)d.Operating Leverage
Solution
The financial metric that indicates the proportion of equity and debt in a company's capital structure is the Debt-to-Equity Ratio. This ratio is calculated by dividing the company's total liabilities by its shareholder equity. It provides insight into the company's financial leverage and risk. A high ratio suggests that the company has been aggressive in financing its growth with debt, which can result in volatile earnings. On the other hand, a low ratio indicates lower risk but may also signal that the company is not taking advantage of the potential profits that financial leverage may bring.
Similar Questions
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