Question

Mary applied for a loan and was rejected. Calculate her debt-to-assets-ratio, given that

her current debt is $60,000 and her assets is $66,000. Comment on the results
explaining why Mary was rejected for the loan

Answer 1

Answer and Explanation:

The computation of the debt to asset ratio is shown below:

Debt to Assets Ratio = (Total Debts ÷ Total Assets) × 100

= $60,000 ÷ $66,000 × 100

= 90.91%

This debt to asset ratio represents that 90% is the liability corresponding to the assets this shows that it is more leverages and more risky for taking more loans. And the loan application would be rejected as the bank would feel that the debt to asset ratio is high leveraged and contains huge risk