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Annette [7]
3 years ago
15

If a firm has a debt ratio of 54%, what is the firm's debt to equity ratio?

Business
1 answer:
kolbaska11 [484]3 years ago
3 0

Answer:

If a firm has a debt ratio of 54%, then the firm's debt to equity ratio is 117%

Explanation:

The Debt Ratio is obtained dividing Liabilities / Assets. Then, a result of 54% means that 54% of the asset is composed by liabilities.

<u>Liabilities</u><u>    54 </u>

Assets        100

Debt Ratio= 54%

By the general accounting formula we know that

Assets= Liabilities+Equity.      Then,

Assets(100)=Liabilities(54)+Equity(46)

If the Debt to equity ratio is calculated by the division of liabilities/Equity- Then:

<u>Liabilities      54</u>

Equity           46

Debt to Equity Ratio = 117%

This means that for 1 dollar on the Equity the company has 1 dollar plus 17% or 17 cents on the Liabilities.

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