Question

If a company has total assets of $2,200,000, current liabilities of $175,000, total liabilities of $1,300,000, common stock of $140,000 and total stockholders' equity of $900,000, what is its debt to equity ratio?

Answer 1

The debt to equity ratio for the company is approximately 1.44, calculated using the provided total liabilities of $1,300,000 and total stockholders' equity of $900,000.

Step-by-step explanation:

The debt to equity ratio is a financial leverage ratio that compares a company's total liabilities to its stockholders' equity. It indicates the proportion of equity and debt that a company is using to finance its assets, and it is often used by investors to assess the financial health of a company.

In this scenario, to calculate the debt to equity ratio, we use the formula: Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity. From the given information, the total liabilities are $1,300,000 and the total stockholders' equity is $900,000. Therefore, the debt to equity ratio equals $1,300,000 / $900,000, which simplifies to approximately 1.44.