Question

Assertion (A): A low Total Assets to Debt Ratio indicates risky financial position.

Reason (R): A low Total Assets to Debt Ratio implies the use of higher debts in financing the assets of the business. Hence, it indicates a risky financial position.

In the context of the above two statements, which of the following is correct?

विकल्प

• Both (A) and (R) are correct and (R) is the correct reason of (A).

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct and (R) is the correct reason of (A).

Explanation:

A low Total Assets to Debt Ratio means that a significant amount of assets are financed with debt, increasing financial risk. As a result, it signals a potentially risky financial situation. As a result, both Assertion and Reason are correct, and the Reason accurately explains the Assertion.