There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Total Assets to Long-term Funds (Debt) Ratio shows the financing of assets from Long-term Borrowings.
Reason (R): The formula for calculating the ratio is Total Assets/Debt. Thus, it shows Long-term Funds invested in the assets of the company.
Answer & explanation
Correct answer: option 1
The Total Assets to Debt Ratio is calculated as the ratio of a company's total assets to its long-term debts. It is a measure of a company's leverage and indicates the proportion of total assets that are financed by long-term debt. The formula for calculating the Total Assets to Debt Ratio is as follows:
Total Assets to Debt Ratio = Total Assets / Long-term Debts
Where: Total Assets: This represents the sum of all assets on the company's balance sheet, including both current and non-current assets.
Long-term Debts: This includes all long-term liabilities, such as long-term loans, bonds, mortgages, and other long-term borrowings.