The correct answer is: C. That the interests of creditors are not safe in the company.
The debt-equity ratio is a measure of a company’s financial leverage. It is calculated by dividing the company’s total debt by its total equity. A high debt-equity ratio indicates that a company is using a lot of debt to finance its operations. This can be risky for creditors, as it means that the company is more likely to default on its loans.
In the case of the company in the question, the debt-equity ratio has been increasing from year to year. This suggests that the company is using more and more debt to finance its operations. This is a worrying trend for creditors, as it means that the company is becoming more risky.
It is important to note that the debt-equity ratio is just one measure of a company’s financial health. Other factors, such as the company’s cash flow and profitability, should also be considered when assessing a company’s risk.
Here is a brief explanation of each option:
- Option A: That the company’s financial structure is sound. This is not necessarily the case. A high debt-equity ratio can indicate that a company is using too much debt, which can be risky.
- Option B: That the company is capable of meeting its short-term liabilities. This is also not necessarily the case. A high debt-equity ratio can indicate that a company is using too much debt, which can make it difficult to meet its short-term liabilities.
- Option C: That the interests of creditors are not safe in the company. This is the most likely explanation for the increasing debt-equity ratio. A high debt-equity ratio indicates that a company is using a lot of debt to finance its operations, which can be risky for creditors.
- Option D: That the long-term liquidity of the company is improving from year to year. This is not necessarily the case. A high debt-equity ratio can indicate that a company is using too much debt, which can make it difficult to meet its long-term liabilities.