ACCA Advanced Financial Management (AFM) Practice Exam

The correct expression for an alternative calculation of the debt ratio is derived from the relationship between a company's debt and its overall capital structure. The debt ratio provides insight into how much of a company's assets are financed by debt, and it is calculated by considering long-term liabilities in relation to the total funding provided by both long-term liabilities and equity.

In choice C, long-term liabilities are expressed as a proportion of the total capital available to the firm, which is the sum of long-term liabilities and equity. This calculation gives a clear representation of the extent to which the business is reliant on long-term debt relative to its shareholders' equity. A higher ratio indicates greater financial risk as more of the financing is derived from borrowing.

This metric is significant for stakeholders in assessing the risk and financial health of a company, as it highlights the balance between debt and equity financing. Overall, this alternative calculation aids in understanding a company's leverage and financial stability.

In contrast, the other options do not accurately represent the calculation of the debt ratio, focusing instead on other financial relationships that do not directly convey this specific measure of financial risk.