Afirm has a long-term debt-equity ratio of .5. shareholders’ equity is $1.01 million. current assets are $199,500, and the current ratio is 1.9the only current liabilities are notes payable. what is the total debt ratio?

0.38 times

Explanation:

Debt ratio measures the degree to which a corporation uses debt component for its financing needs. It is the ratio of total liabilities to total assets.

Given:

Equity = $1.01 million

Current assets = $199,500

Current ratio = 1.9

Debt equity ratio = Long term debt ÷ Equity

  Long term debt = Debt equity ratio × Equity

                              = 0.5 × 1.01 million

                              =  $505,000

Compute current liabilities with the help of current ratio

Current ratio = Current assets ÷ Current liabilities

Current liabilities = Current assets ÷ current ratio

                             = 199,500 ÷ 1.9

                             = $105,000

Total liabilities = Long term debt  + current liabilities

                        = 505,000 + 105,000

                        = $610,000

Total assets = Equity + Total liabilities

                     = 1,010,000 + 610,000

                      = $1,620,000

Debt ratio = Total liabilities ÷Total assets

                 = 610,000 ÷ 1,620,000

                 = 0.38 times

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