Question

The Debt-Equity Ratio of a company is 3 : 2. Which of the following transactions will result in an increase in this ratio?

• A. Purchase of goods on credit
• B. Issue of Debentures
• C. Issue of Equity Shares
• D. Cash received from Debtors

Hint:

Issuance of debt (like debentures) increases the numerator of the debt-equity ratio, while equity-related transactions impact the denominator.

Answer 1

The Correct Option is B

- The debt-equity ratio is calculated as: \[ \text{Debt-Equity Ratio} = \frac{\text{Total Debt}}{\text{Total Equity}}. \] - Issuing debentures increases debt without affecting equity, resulting in an increase in the debt-equity ratio. - Other transactions like issuing equity shares or receiving cash from debtors affect equity or current assets, not the debt-equity ratio.