Question

The year-end balance sheet of Ultimate Medical Center shows a total liability of $5,000,000, including a loan to expand services. Net worth at the balance sheet date was $4,000,000. Calculate the debt-to-worth ratio.

A. 0.80

B. 1.25

C. 1.20

D. 0.75

Answer 1

The debt-to-worth ratio for Ultimate Medical Center is found to be 1.25 after dividing the total liabilities ($5,000,000) by the net worth ($4,000,000).

Step-by-step explanation:

The debt-to-worth ratio is calculated by dividing total liabilities by net worth. In the case of Ultimate Medical Center, the total liabilities are $5,000,000 and the net worth is $4,000,000. Using the formula:

Debt-to-Worth Ratio = Total Liabilities / Net Worth

The calculation would be:

Debt-to-Worth Ratio = $5,000,000 / $4,000,000 = 1.25

Therefore, the debt-to-worth ratio for Ultimate Medical Center is 1.25, which corresponds with option B.