Question
Company G has a ratio of liabilities to stockholders' equity of 0.12 and 0.28 for Year 1 and Year 2, respectively. In contrast, Company M
Company G has a ratio of liabilities to stockholders' equity of 0.12 and 0.28 for Year 1 and Year 2, respectively. In contrast, Company M has a ratio of liabilities to stockholders' equity of 1.13 and 1.29 for the same period. Required:
Based on this information, which company's creditors are more at risk?
A) Company G
B) Company M
Should the creditors of either company be concerned about the risk of nonpayment?
A) No, because the ratios are close to the industry average for both companies.
B) No, because business conditions are improving.
C) Yes, because ratios for both companies have increased over the period.
D) Yes, because the liabilities are low compared to stockholders' equity.
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