Question

Camile Plastics Company had the following total assets, liabilities, and equity as of December 31.

Assets $430,000
Liabilities 132,000
Equity 298,000
What is the company's debt ratio as of December 31? (Round your percentage answer to two decimal places.)
A) 44.30%
B) 30.70%
C) 100.00%
D) 69.30%

Answer 1

B) 30.70%

Step-by-step explanation:

Given: Assets= $430000.

Liabilities= $132000.

Equity= $298000.

Now, computing to find debt ratio.

Formula; Debt ratio=
`(Total\ liabilities)/(Total\ assets) * 100`

⇒ Debt ratio=
`(132000)/(430000) * 100`

∴ Debt ratio=
`30.70\%`

Debt ratio determine the financial risk of the company, as higher is the debt ratio, greater is the financial leverage of the company and it also show the percentage of the assets funded by debt.

Hence, 30.70% is the company's debt ratio as of December 31.