ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What does the Debt Ratio represent?

Total debts / Total assets
Total equity / Total assets
Total liabilities / Total equity
Total debts / Total liabilities

The correct answer is: Total debts / Total assets

The Debt Ratio is a key financial metric that measures the proportion of a company's total assets that are financed through debt. This ratio is calculated by dividing total debts by total assets. When analyzing a company’s financial structure, the Debt Ratio helps stakeholders assess the level of financial risk associated with the business. A higher debt ratio indicates that a larger portion of the company's assets is financed through debt, which may suggest higher financial leverage and risk. Conversely, a lower ratio might indicate a more conservative financing strategy with less reliance on debt. Understanding this ratio is essential for investors and management as it provides insight into the company's solvency and capital structure. It signals how much of the assets can cover obligations and can influence decisions made by investors and creditors regarding the company's financial health.