Final answer:
Fincher, Inc. has a debt-equity ratio of 2.4483 and an equity multiplier of 3.4483, calculated from a total debt ratio of 0.71 using algebraic manipulation of the formulas for these financial metrics.
Step-by-step explanation:
The total debt ratio is given for Fincher, Inc., which is 0.71. This ratio reflects the proportion of the company's assets that are financed through debt. To find the debt-equity ratio, we need to use the formula:
Debt-Equity Ratio = Total Debt / Total Equity
We know that:
Total Debt Ratio = Total Debt / (Total Debt + Total Equity)
Given that the Total Debt Ratio = 0.71, we can express Total Debt as 0.71(Total Debt + Total Equity). With some algebraic manipulation, we can solve for the Total Debt to Total Equity ratio.
If we let A represent the Total Assets, which equals Total Debt plus Total Equity, we have:
Total Debt = 0.71A
Total Equity = A - Total Debt
= A - 0.71A
= 0.29A
Calculating the Debt-Equity Ratio
Therefore, the Debt-Equity Ratio is:
Debt-Equity Ratio = Total Debt / Total Equity
= 0.71A / 0.29A
= 2.4483
Calculating the Equity Multiplier
The Equity Multiplier is calculated by the following formula:
Equity Multiplier = Total Assets / Total Equity
Considering Total Assets as A and using the previously found Total Equity value (0.29A), we have:
Equity Multiplier = A / 0.29A
= 1 / 0.29
= 3.4483
Thus, Fincher, Inc. has a Debt-Equity Ratio of 2.4483 and an Equity Multiplier of 3.4483.