The correct answer is C. Equity : Debt.
A capital structure ratio is a measure of the relative proportions of debt and equity financing used by a company. It is calculated by dividing the company’s total debt by its total equity.
Debt financing is a form of financing in which a company borrows money from a lender, such as a bank, and agrees to repay the loan with interest over a specified period of time. Equity financing is a form of financing in which a company sells shares of ownership in the company to investors.
The capital structure ratio is an important measure of a company’s financial health. A high capital structure ratio indicates that a company is using a lot of debt financing, which can be risky if the company is unable to repay its loans. A low capital structure ratio indicates that a company is using a lot of equity financing, which can be less risky but also less profitable.
The optimal capital structure ratio for a company will vary depending on a number of factors, such as the company’s industry, its risk profile, and its access to capital. However, in general, a company should aim to have a capital structure ratio that is appropriate for its risk profile and that allows it to generate a healthy return on investment.
Here is a brief explanation of each option:
- Option A: Equity : Preference. This ratio is not a capital structure ratio. A preference share is a type of share that has a higher claim on a company’s assets than an ordinary share.
- Option B: Equity : Reserve. This ratio is not a capital structure ratio. A reserve is an account on a company’s balance sheet that represents accumulated profits that have not been distributed to shareholders.
- Option C: Equity : Debt. This is the correct answer. A capital structure ratio is a measure of the relative proportions of debt and equity financing used by a company.
- Option D: Long term debt : Short term debt. This ratio is not a capital structure ratio. A long-term debt is a debt that has a maturity of more than one year. A short-term debt is a debt that has a maturity of one year or less.