Question

Company Expenses Total Assets Net Income Total Liabilities Dreamworks $ 22,000 $ 40,000 $ 19,000 $ 30,000 Pixar 67,000 150,000 27,000 147,000 Universal 12,000 68,000 5,000 17,000 a. Compute the debt ratio for each of the three companies. (Round your answers to 2 decimal places.) b. Which company has the most financial leverage?

Answer 1

Answer:

                      Expenses   Total Assets   Net Income   Total Liabilities

Dreamworks   $22,000      $40,000         $19,000         $30,000

Pixar                $67,000      $150,000        $27,000        $147,000

Universal         $12,000      $68,000          $5,000          $17,000

Debt ratio: Total Debt / Total Assets

Dreamworks = $30,000 / $40,000 = 0.75

Pixar = $147,000 / $150,000 = 0.98

Universal = $17,000 / $68,000 = 0.25

Financial Leverage: Asset / Equity

Dreamworks = $40,000 / (40,000-30,0000) = 4

Pixar = $150,000 / (150,000-147,000) = 50

Universal = $68,000 / (68,000-17000) = 1.33

Pixar Has the most financial leverage.