Question

A company's ratio of liabilities to stockholders' equity decreased from 0.6 to 0.4 during the year. This is a.an improvement in the margin of safety for creditors. b.an indication that the company's level of debt is increasing. c.a negative change in the company's financial position. d.an improvement in the company's net income.

Answer 1

Answer:

A)an improvement in the margin of safety for creditors.

Explanation:

Margin of safety can be regarded as a principle of investing whereby an investor only make purchases of securities during the time when the market price is below their intrinsic value significantly. In a case whereby

the market price of a security falls below ones estimation of its intrinsic value significantly, then the difference that exist there is regarded as margin of safety. Margin of safety can as well be regarded as financial ratio which gives measurement of the amount of sales which exceed the break-even point. Most times investors may create a margin of safety with regards to their own risk preferences, purchasing of securities in a time that there is a difference give room for an investment to be made with minimal downside risk.

For instance, company's ratio of liabilities to stockholders' equity decreased from 0.6 to 0.4 during the year.