Discussion
What is the index of conservatism in capital structure ?
Answer: D
The index of conservatism is the proprietary ratio.
The proprietary ratio, shareholders' funds divided by total assets, shows how much of the business is financed by the owners. A high ratio means little reliance on borrowed funds, a conservative capital structure that protects creditors.
The working capital ratio measures short-term liquidity, the operating ratio operating efficiency, and the price-earnings ratio the market's valuation of earnings; none measures conservatism in the capital structure.
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