Question

Charger Company's most recent balance sheet reports total assets of $29,133,000, total liabilities of $16,683,000 and total equity of $12,450,000. The debt to equity ratio for the period is (rounded to two decimals):

Answer 1

1.34

Step-by-step explanation:

Debt to equity ratio is the same as liability to equity ratio. In order to arrive at the debt to equity ratio, the amount of liability has to be divided by the amount of equity.

Given that;

Total liabilities = $16,683,000

Equity = $12,450,000

Therefore,

The debt to equity ratio for the period

= Total liabilities ÷ Total equity

= $16,683,000 ÷ $12,450,000

= 1.34

We use debt to equity ratio to determine a company's leverage; meaning that where it is greater than 1, it means that the company has more of its debt than assets, which is not good enough.