Question

If the debt/equity ratio is 0.50. what is the debt ratio? 0.5 0.375 0.6 1 0.3333

Answer 1

Calculation of debt ratio:

Debt Ratio can be calculated using the following formula:

Debt Ratio = Total Debt / Total Assets

We are given that debt/equity ratio is 0.50, it means Total Equity = 2 * Total Debt

Total Assets = Total Debt + Total Equity

So, Total Assets = Total Debt + 2* Total Debt

Or

Total Assets = 3* Total Debt

So, Debt Ratio = Total Debt / 3* Total Debt = 1/3 = 0.3333

Hence, Debt ratio is 0.3333