SACE Stage 2 Accounting 2026 – 400 Free Practice Questions to Pass the Exam

The debt ratio is a financial metric that indicates the proportion of a company's assets that are financed through debt. It is calculated by dividing total liabilities by total assets. This measure helps stakeholders understand the level of financial leverage a company is using; a higher debt ratio indicates that a larger portion of the assets is funded through debt, which can imply greater financial risk. Conversely, a lower debt ratio suggests that the company relies more on equity funding. This metric is crucial for assessing a firm's risk profile and financial stability, making option A the correct choice. The other options do not relate directly to the debt ratio; they cover aspects like revenue, expenses, and owner's equity, which are separate components of a firm’s financial statements.