Question

A retailer has total assets of 6,000,000 and a net worth of 3,000,000. What is the retailer's financial leverage ratio?

1) 0.5 times
2) 2.0 times
3) 50 percent
4) 75 percent
5) 100 percent

Answer 1

The retailer's financial leverage ratio is calculated by dividing its total assets of $6,000,000 by its net worth of $3,000,000, resulting in a leverage ratio of 2.0 times.

Step-by-step explanation:

The financial leverage ratio is calculated by dividing total assets by net worth. In the case of the retailer with total assets of $6,000,000 and a net worth of $3,000,000, the financial leverage ratio would be:

Financial Leverage Ratio = Total Assets / Net Worth

= $6,000,000 / $3,000,000

= 2.0 times

Therefore, the retailer's financial leverage ratio is 2.0 times, which corresponds to option 2 on the provided list.