Final answer:
The most accurate statement about a company's ability to meet its long-term debt obligations is that a high debt-to-equity ratio may indicate the company has exhausted its borrowing capacity, suggesting potential over-leverage and increased financial risk. The correct option is A.
Step-by-step explanation:
Assessing a company's ability to meet its long-term debt obligations involves analyzing various financial ratios and statements. When considering the provided options:
- Ratios such as the debt-to-equity ratio help evaluate a company's financial leverage and its reliance on debt financing compared to shareholders' equity. A high debt-to-equity ratio might indicate that a company is heavily financed by debt, which could exhaust borrowing capacity and increase risk.
- However, a very high debt-to-equity ratio does not necessarily indicate underuse of leverage; it more often suggests over-leverage, possibly jeopardizing financial stability.
- The times interest earned ratio is a measure of a company's ability to honor its interest payments, not directly its principal.
- The key ratios for evaluating long-term solvency do include debt to equity but typically pair it with interest coverage ratios rather than return on assets.
In summary, the most accurate statement regarding a company's ability to meet its long-term debt obligations among the provided options is (a): If the debt-to-equity ratio is too high, it may indicate that the company has used up its borrowing capacity.