Photo AI
The table shows debt to equity ratios for a business in 2008 and 2009 - HSC - SSCE Business Studies - Question 12 - 2009 - Paper 1
Question 12
The table shows debt to equity ratios for a business in 2008 and 2009. | | 2008 | 2009 | |-------|-------------|--------------| | | 100% ... show full transcript
Worked Solution & Example Answer:The table shows debt to equity ratios for a business in 2008 and 2009 - HSC - SSCE Business Studies - Question 12 - 2009 - Paper 1
Step 1
How has the financial position of the business changed from 2008 to 2009?
Answer
To assess the financial position, we can analyze the debt to equity ratios provided for the years 2008 and 2009.
-
Understanding Ratios: In 2008, the ratio was 1:1, indicating that the debt and equity were equal. In 2009, the ratio improved to 0.75:1, meaning the business has 75% of the debt relative to its equity.
-
Interpreting Changes: A decrease in the debt to equity ratio indicates an improvement in solvency. In 2009, the business is less leveraged, suggesting it is financially healthier and has a lower proportion of debt compared to equity.
-
Risk Assessment: With improved solvency, the risk of the business is also reduced. The lower debt burden means less financial strain and better ability to meet obligations.
Based on this analysis, the financial position has improved, and the risk has decreased. The correct answer is (D) Improved solvency and decreased risk.