Question

A firm has $100 million in current liabilities, $200 million in total long-term liabilities, $300 million in stockholders' equity, and total assets of $600 million. Calculate the debt ratio for the firm.

Answer 1

Debt ratio is 0.5

Step-by-step explanation:

The DEBT ratio tells us how much debt a firm has as a ratio to its assets. So it is calculated by dividing total debt by total assets. The firm has current liabilities of 100 million and long term liabilities of 200 million, we will add both of them up in order to find total liabilities.

Total Liabilities = 100 million + 200 million = 300 million

The firms total assets are 600 million, in order to find the debt ratio we will divide 300 million by 600 million

300/600= 0.5

This means that the total debt of the firm is half the amount of total assets.