Question

On December 31, 2018, a company had assets of $28 billion and stockholders' equity of $20 billion. That same company had assets of $56 billion and stockholders' equity of $18 billion as of December 31, 2019. During 2019, the company reported total sales revenue of $21 billion and total expenses of $19 billion. What is the company's debt-to-assets ratio on December 31, 2019

Answer 1

Answer: 0.68

Explanation:

The Debt-to-Assets ratio is a leverage ratio in financial Analysis that is intended to show how much of the company's assets are funded by debt.

It is calculated by dividing the Company's entire debt by it's Total Assets.

We have the Assets as at the 31st of December 2019 as well as the Equity. Now we need to find debt.

Remember the Accounting Equation,

Assets = Equity + Liability

So,

Liability = Assets - Equity

= 56 billion - 18 billion

= $38 billion.

Using the Debt-to-Assets ratio formula then we have,

= Debt /Assets

= 38/56

= 0.67857142857

= 0.68

0.68 is the company's debt-to-assets ratio on December 31, 2019.