QQuestionAccounting
QuestionAccounting
When dividing its total debt by its total equity, what is a company trying to measure?
A. Leverage
B. Profitability
C. Growth
D. Value
E. Liquidity
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Answer
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Step 2: Understand the Financial Metric
When a company divides its total debt by its total equity, it is calculating its debt-to-equity ratio, which is a key measure of financial leverage.
Final Answer
Leverage Explanation: By dividing total debt by total equity, a company is measuring its financial leverage, which indicates how much it relies on borrowed funds compared to shareholders' equity. This ratio is crucial for understanding the company's financial structure and potential financial risk.
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