A firm has a longterm debtequity ratio of 3 Shareholders equ

A firm has a long-term debt-equity ratio of .3. Shareholders’ equity is $1.02 million. Current assets are $198,000, and the current ratio is 1.8. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)

Solution

What is the total debt ratio? Debt-equity ratio = long term debt /equity 0.3          = Long term debt / 1020000 Long term debt      = 0.3 x 1020000 Long term debt      = $306000 Current assets / Current Liabilities = 1.8 $198000 / Current Liabilities = 1.8 Current Liabilities = $198000 / 1.8 = $110000 = Notes Payable Total liabilities = $416,000 Total assets = total liabilities + equity = $416,000 + $1,020,000 = $1,436,000 Total debt ratio = $416,000/$1,436,000 = 0.29