Final answer:
The debt to total assets ratio is used to evaluate a company's solvency and long-term debt-paying ability, not its liquidity or short-term debt-paying capacity. It is calculated by dividing total debt by total assets.
Step-by-step explanation:
The correct statement about the debt to total assets ratio is: a) it is used to evaluate a company's solvency and long-term debt-paying ability. The debt to total assets ratio is a financial metric that measures the percentage of a company's assets that are financed by debt. Therefore, the higher the ratio, the greater the degree of leverage and the higher the risk of insolvency. The formula for calculating this ratio is total debt divided by total assets.
Option b) is incorrect because it describes the formula for the gross profit margin. Option c) is incorrect as it outlines how to calculate the price-to-earnings (P/E) ratio. Option d) is incorrect because it refers to measures of liquidity, such as the current ratio or quick ratio, which focus on a company's short-term debt-paying ability.