Accountancy Part BAccounting Ratios

The standard Debt-Equity ratio is:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → 2:1

The debt-equity ratio compares long-term debt with shareholders’ funds. A ratio of 2:1, that is, long-term debt up to twice the equity, is normally taken as safe, though the acceptable level differs from industry to industry.

NCERT (2026-27 edition):
Debt-Equity Ratio – “Debt-Equity Ratio measures the relationship between long-term debt and equity. If debt component of the total long-term funds employed is small, outsiders feel more secure. From security point of view, capital structure with less debt and more equity is considered favourable as it reduces the chances of bankruptcy. Normally, it is considered to be safe if debt equity ratio is 2 : 1.”