Question

The debt to equity ratio of four companies is given below.

Debt to equity ratio ​
Lewis, Inc. 1.30 ​
Jackson, Inc. 1.50
Jones Corp. 0.88
Roberts Corp. 0.92
Which of the following companies has the greatest financial​ risk?
A. Roberts Corp.
B. ​Lewis, Inc.
C. Jones Corp.
D. ​Jackson, Inc.

Answer 1

Answer: Option (D) is correct.

Step-by-step explanation:

The debt to equity ratio is determined by dividing the company's total liabilities by its share holders equity. It is also as financial leverage ratio. This ratio represents a company with a degree of financial risk associated with it.

Higher debt to equity ratio represents that company with a higher risk to shareholder.

When we are comparing the leverage ratio of all the four companies, it was found that ​Jackson, Inc. company has the greatest financial risk which is represented by its debt to equity ratio of 1.50.