Question

Balance Sheet Current assets Cash 870,000 Acc receivable not given Inventories 1,050,000 Fixed assets 3,220,000 TOTAL ASSETS 6,200,000 Current liabilities Acc payable not given Long-term debt 1,900,000 Common stock 680,000 Retained earnings 3,190,000 TOTAL LIAB and EQUITY 6,200,000 Income Statement Sales 18,600,000 Operating expense 14,320,000 EBIT 4,280,000 Interest expense 266,000 EBT 4,014,000 Taxes 1,606,000 Net income 2,408,000 What is the firm's debt ratio?

Answer 1

Answer:

The firm's debt ratio is 0.3758

Explanation:

The formula to compute the firm debt ratio is shown below:

Debt ratio = Total liabilities ÷ Total assets

where,

Total liabilities = Total liabilities and equity - common stock - retained earning

                        =  $6,200,000 - $680,000 - $3,190,000

                        = $2,330,000

And, the total assets are $6,200,000

Now put these values to the above formula

So, the answer would be equal to

=  $2,330,000 ÷ $6,200,000

= 0.3758