Need help solving debt ratio debt to equity ratio and interp

Need help solving debt ratio, debt to equity ratio and interpretation. See scanned pages below.

Solution

Debt ratio:

The debt ratio is a financial leverage ratio that measures the portion of company resources (assets) that is funded by debt ( liabilities).

DEBT RATIO      = TOTAL DEBT / TOTAL ASSET

TOTAL DEBT      = LONG TERM LIABILITY+CURRENT PORTION OF LONG TERM DEBT

                             =4295+241=4536

DEBT RATIO= 4536 / 9869=0.45 0R 45%

INTERPRETATION:

The higher the debt ratio, the more leveraged a company is, implying greater financial risk

Since the industry average is 69%,it can go ahead to borrow more money.

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DEBT TO EQUITY RATIO

It is a long term solvency ratio that indicates the soundness of long-term financial policies of a company. It shows the relation between the portion of assets financed by creditors and the portion of assets financed by stockholders

Debt to equity =total liabilities / shareholders equity

=7751 / 2118

=3.65 which is higher than the industry average of 2.2

INTERPRETATION:

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. Aggressive leveraging practices are often associated with high levels of risk. This may result in volatile earnings as a result of the additional interest expense.

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