Question

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information: Cash $ 25,000 Accounts Receivable 45,000 Inventory 140,000 Fixed Assets 190,000 Current Liabilities 70,000 Long-term Liabilities 90,000 Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

Answer 1

Answer:

66.7%

Explanation:

Calculation to determine Peak Performance's debt to owners' equity ratio

First step is to calculate the Owner's Equity using this formula

Owner's Equity=Total Assets - Total Liabilities

Where,

Total Assets =$25,000 + $45,000 + $140,000 + $190,000

Total Assets = $400,000

Total Liabilities =$70,000 + $90,000

Total Liabilities=$160,000

Let plug in the formula

Owner's Equity=$400,000-$160,000

Owner's Equity=$240,000

Now let Calculate the debt to owners equity ratio using this formula

Debt to owners equity ratio= Debt [total Liabilities]/Owner's Equity

Let plug in the formula

Debt to owners equity ratio = $160,000/$240,000

Debt to owners equity ratio = 0.667*100

Debt to owners equity ratio= 66.7%

Therefore Peak Performance's debt to owners' equity ratio is 66.7%