Question

What will be impact of ‘purchase of a fixed asset on a credit of 3 months’ on a debt-equity ratio of 1 : 1?

Answer 1

The purchase of a fixed asset on credit for 3 months will not affect the debt-equity ratio because both the long-term loans and the shareholders equity will remain unchanged. An increase is only made to the short-term liabilities, which does not have any effect on the ratio.