Question

A firm has a debt-equity ratio of .57. what is the total debt ratio? .36

Answer 1

Answer: The total debt ratio is 0.36

The debt ratio and the debt equity ratio are established by the following identity:

$Debt Ratio = \frac{D/E}{1+D/E}$

where D/E is debt equity ratio

Substituting the value of D/E ratio in the formula above we get,

$Debt Ratio = \frac{0.57}{1+0.57}$

$Debt Ratio = \frac{0.57}{1.57}$

$Debt Ratio = 0.36$