Question

Using the categories of liquidity, profitability and operations management describe which ratios would be used and why to determine whether or not a loans officer at the bank would loan a business money?

Answer 1

The ratio that is mostly used to determine whether or not a loans officer at the bank would loan a business money is known as the debt-to-equity ratio.

What is the debt-to-equity ratio?

This refers to the ratio that allows to measure of the relative contribution of the creditors and shareholders or owners in the capital employed in business.

The debt-to-equity ratio provides an insight into a company's use of debt. When the company have a high D/E ratio, it is considered a higher risk to lenders and investors because it suggests that the company is financing a significant amount of its potential growth through borrowing.

Therefore, the ratio that is mostly used to determine whether or not a loans officer at the bank would loan a business money is known as the debt-to-equity ratio.

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