Assertion (A): A low Total Assets to Debt Ratio indicates risky financial position. Reason (R): A low Total Assets to Debt Ratio implies the use of higher debts in financing the assets of the business. Hence, it indicates a risky financial position. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are correct and (R) is the correct reason of (A). Explanation: A low Total Assets to Debt Ratio means that a significant amount of assets are financed with debt, increasing financial risk. As a result, it signals a potentially risky financial situation. As a result, both Assertion and Reason are correct, and the Reason accurately explains the Assertion.

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