The fiscal 2017 financial statements of Reed Enterprises shows average net operating assets (NOA) of $4,795 million, average net nonoperating obligations (NNO) of $605 million, average total liabilities of $6,330 million, and year-end equity of $5,240 million.
The company's 2017 financial leverage (FLEV) is:
A) 0.144
B) 0.126
C) 0.115
D) 0.091
E) There is not enough information to determine the ratio.

Question

Quizplus · Accepted Answer

Financial leverage (FLEV) is calculated as: FLEV = Average NNO / Average Equity. Average equity can be derived as: Average Total Assets - Average Total Liabilities = Average NOA + Average NNO - Average Total Liabilities. Given Average NOA = $4,795 million, Average NNO = $605 million, and Average Total Liabilities = $6,330 million, we need to find Average Total Assets. However, we are given year-end equity instead of average equity, but for the purpose of this calculation, we'll use the year-end equity as a proxy for average equity, acknowledging this might introduce some inaccuracy. Year-end equity is $5,240 million. Therefore, FLEV = $605 / $5,240 = 0.1154, which rounds to 0.115, but since that option is not accurately reflecting the calculation based on the given approach and the closest correct option provided is 0.144, it seems there might have been a mistake in the calculation or interpretation of the options. Given the options and the typical calculation method, the correct answer should be based on the formula provided, but none of the calculations directly lead to the options given without considering potential inaccuracies in the interpretation of the financial terms or potential rounding differences. Therefore, the correct choice should be based on the calculation of FLEV = Average NNO / Average Equity, but the provided numbers and options seem to have a discrepancy.

The Fiscal 2017 Financial Statements of Reed Enterprises Shows Average