The table shows debt to equity ratios for a business in 2008 and 2009 - HSC - SSCE Business Studies - Question 12 - 2009 - Paper 1

To analyze how the financial position of the business has changed, we need to look at the debt to equity ratios for both years:

• In 2008, the debt to equity ratio was 100%, indicating that the company had a balance of debt and equity that was equal (1:1).
• In 2009, this ratio decreased to 75% (0.75:1). This implies that the proportion of debt decreased relative to equity.

Interpretation of the Ratios

With the reduction in the ratio to 75%, it can be concluded that the business now has less debt in relation to its equity. This reflects an improvement in solvency, as a lower debt to equity ratio often indicates a stronger financial position and ability to cover long-term obligations.

Risk Assessment

Additionally, with lower debt relative to equity, the company is likely to face reduced financial risk, giving it more flexibility in operations and less vulnerability in challenging economic conditions.

Conclusion

Based on the changes observed, the correct assessment of the financial position of the business from 2008 to 2009 is: (D) Improved solvency and decreased risk.