Question

Using the data below, compute DEBT RATIO.

Using the data below, compute Return on Equity.

Accounts Payable 800
Accounts Receivable 1,100
Capital Stock 2,000
Cash 50
Cost of Goods Sold 6,000
Inventory 1,500
Long-term Debt 1,820
Net Income 950
Property, Plant, and Equipment (net) 3,000
Retained Earnings 1,030
Sales 10,000
Market value of shares 12,000

Answer 1

a. Total Liabilities = Accounts Payable + Long-term Debt

Total Liabilities = 800 + 1,820

Total Liabilities = $2,620

Total Assets = Accounts Receivable + Cash + Inventory + Property, Plant, and Equipment (net)

Total Assets = 1,100 + 50 + 1,500 + 3,000

Total Assets = $5,650

Debt Ratio = Total Liabilities / Total Assets

Debt Ratio = $2,620 / $5,650

Debt Ratio = 0.463717

Debt Ratio = 46.37%

b. Return on Equity = Net Income / Shareholder Equity

Return on Equity = Net Income / (Capital Stock + Retained Earnings)

Return on Equity = $950 / ($2,000+$1,030)

Return on Equity = $950 / $3,030

Return on Equity = 0.31353135

Return on Equity = 31.35%