Question : Which of the following statements is incorrect?
Option 1: Decrease in Long term Debts decreases the Debt-Equity Ratio
Option 2: Increase in Long term Debts,increases the Debt-Equity Ratio
Option 3: Decrease in Shareholder’s Funds increases the Debt-Equity Ratio
Option 4: None of the above
Correct Answer: None of the above
Solution : Answer = None of the above
If long-term term Debt decreases, then it also decreases the Debt Equity Ratio.
If Debt increases, then the Debt to debt-to-equity ratio will also increase.
If the Share Holder fund decreases, then the Debt to Equity Ratio will also increase because the Debt to Equity Ratio shows the relationship between Debt and Equity.
Hence, the correct option is 4.
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