Discussion
______ ratio is determined to ascertain the proportion between the 'outsiders' funds and share-holders funds' in the capital structure of an enterprise
Answer: A
The debt-equity ratio is determined to ascertain the proportion between outsiders' funds and shareholders' funds in the capital structure. Outsiders' funds are the long-term debts, such as debentures and term loans, and shareholders' funds are the share capital and reserves. Dividing the first by the second gives the ratio. Capital gearing compares fixed-return capital with equity capital, the proprietary ratio compares shareholders' funds with total assets, and return on total resources measures profit, so the first option fits the wording best.
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