Certified Management Accountant Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Study for the Certified Management Accountant Exam. Engage with interactive quizzes and multiple-choice questions, featuring hints and detailed explanations. Boost your confidence and ace your exam!

Start Multiple Choice Practice Test
Start Flash Cards

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

How is the debt to total assets ratio calculated?

  1. Total assets/total liabilities

  2. Long-term debt/stockholders' equity

  3. Total liabilities/total assets

  4. Shareholders' equity/total liabilities

The correct answer is: Total liabilities/total assets

The debt to total assets ratio is a financial metric used to assess a company's leverage and financial stability. It measures the proportion of a company's assets that are financed by debt. The calculation is conducted by dividing total liabilities by total assets. This ratio provides investors and creditors with insight into the level of risk associated with the company's capital structure. A higher ratio indicates that a larger portion of the assets is financed through debt, which might suggest higher financial risk, while a lower ratio suggests a more conservative approach to financing. Ultimately, the reason this particular calculation is the correct choice highlights its significance in evaluating how much of a company's assets are owned outright versus how much is owed to creditors. It reflects the reliance on debt in the overall financial structure of the company, allowing stakeholders to better assess the firm's risk profile and creditworthiness.

More Questions Like This