which ratio would best give an owner an indication that the business is undercapitalized? quick net sales to total assets average inventory turnover debt-to-net worth

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20-12-2022
Business

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which ratio would best give an owner an indication that the business is undercapitalized? quick net sales to total assets average inventory turnover debt-to-net worth

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smecloudbird17 smecloudbird17 · Answer 1 · 2022-12-23T04:47:03-05:00

The debt-to-net-worth ratio would best indicate to an owner that the business is undercapitalized.

Undercapitalization restricts enterprise growth by limiting business investments in key assets such as equipment, employees, or inventory required for growth; the company lacks the funds required to meet market demands.

Undercapitalization occurs when a company lacks sufficient capital to carry out routine business operations. It may also result in the company's inability to pay its creditors.Undercapitalization can occur due to a failure to properly plan for customer demand, an unexpected increase in operating expenses, or costly income tax mistakes.

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