As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information: Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

Question

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information:  Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

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Step one: Use the fundamental accounting equation to calculate Owners' equity: Total assets - Total liabilities = Owners' equity. Total assets = $400,000 [$25,000 + $45,000 + $140,000 + $190,000]. Total liabilities = $160,000 [$70,000 + $90,000]. Total assets of $400,000 - Total liabilities of $160,000 = Owners' equity of $240,000. Step two: Calculate the debt to owners' equity ratio = Debt [total liabilities]/Owners' equity. The ratio of total liabilities to owners' equity = $160,000/$240,000 = 0.667 (or 66.7%).

As a Bank Loan Officer, You Are Considering a Loan