Question

On December 31, 2018, a company had assets of $20 billion and stockholders' equity of $16 billion. That same company had assets of $40 billion and stockholders' equity of $13 billion as of December 31, 2019. During 2019, the company reported total sales revenue of $13 billion and total expenses of $11 billion. What is the company's debt-to-assets ratio on December 31, 2019

Answer 1

Answer:

62.50 %

Explanation:

Debt-to-assets ratio = Interest bearing debt / total assets x 100

where,

Accounting Equation :

Assets = Equity + Liability

also stated,

Liability = Assets - Equity

therefore

Interest bearing debt = Assets - Equity

Equity = Stocks + Retained Earnings

for 2019

Equity = $13 billion + ($13 billion - $11 billion) = $15 billion

Interest bearing debt = $40 billion - $15 billion = $25 billion

therefore,

Debt-to-assets ratio = $25 billion / $40 billion x 100 = 62.50 %

Conclusion

The company's debt-to-assets ratio on December 31, 2019 is 62.50 %