Given the following Year 12 balance sheet data for a footwear company Balance Sh

Question

Given the following Year 12 balance sheet data for a footwear company Balance Sheet Data Cash on Hand Total Current Assets Total Assets Overdraft Loan Payable 1-Year Bank Loan Payable Current Portion of Long-Term Loans Total Current Liabilities Long-Term Bank Loans Outstanding 5,000 70,000 300,000 3,000 15,000 20,000 55,000 100,000 Year 11 Year 12 Balance Change Shareholder Equity: Common Stock Additional Capital Retained Earnings Total Shareholder Equity 10,000 110,000 0 10,000 0 110,000 5,00010,000 25,000 135,000 10,000 145.000 Based on the above figures and the formula for calculating the debt-assets ratio, the company's debt-assets ratio (where debt is defined to include both short-term and long-term debt) is 0.45 0.33 O 0.127

Explanation / Answer

Debt to Asset ratio = Debt / Total Asset

Debt = Short term debt + long term debt

Short term debt = Current Liabilities = 55000

Long term debt =Long term bank loan outstanding = 100000

Debt = 100000+55000 = 155000

Total Asset = 300000

Debt to Asset ratio = Debt / Total Asset = 155000/300000 = 0.52

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