Influenced by a firms ability to make interest payments and

Influenced by a firm\'s ability to make interest payments and pay back its debt, if all else is debt, creditors would prefer to give loans to companies with ______ (high/low) debt ratios.

Solution

Influenced by a firm\'s ability to make interest payments and pay back its debt, if all else is debt, creditors would prefer to give loans to companies with low debt ratios.
Because low debt ratio mean the firm is les leveraged and hence is less risky. Its interest paying capacity will be higher. Higher leverage increases cost of debt as risk increases. Hence banks would prefer to give loans to companies with low debt ratios like debt ratio etc.

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