Question

Satisfactory ratio between long-term debts and shareholder’s funds is ______.

Options

• 1 : 1

• 3 : 1

• 1 : 2

• 2 : 1

Answer 1

Satisfactory ratio between long-term debts and shareholder’s funds is 2 : 1.

Explanation:

The Debt–Equity Ratio (Long‑term Debts ÷ Shareholder’s Funds) is 1 : 2, meaning long‑term debts should be half of shareholders’ funds to ensure a conservative capital structure and sound long‑term solvency. A ratio much higher (e.g., above 2 : 1) is considered risky.