Which of the following ratios would Mitchell use to determine if his firm was using its resources to ensure it can meet its financial commitments in the longer term? (A) Gross profit (B) Debt to equity (C) Return on owners' equity (D) Accounts receivable turnover - HSC - SSCE Business Studies - Question 10 - 2004 - Paper 1

1. Gross profit - This ratio measures the profit a company makes after deducting the costs of goods sold but does not directly indicate financial commitments.
2. Debt to equity - This ratio compares a company's total liabilities to its shareholder equity. It indicates the proportion of debt used in financing the company. This is crucial for long-term financial stability.
3. Return on owners' equity - This measures the return generated on the equity invested by owners, which may not directly reflect the ability to meet obligations.
4. Accounts receivable turnover - This indicates how efficiently a firm collects its receivables but does not directly address long-term financial commitments.

The best choice is (B) Debt to equity. This ratio helps determine if the firm is using its resources wisely to meet financial obligations in the long term.