Brown Bag Liquor Emporium has short-term liabilities of $150,000 and long-term liabilities of $200,000. With gross profits of $500,000 and owners' equity of $100,000, calculate its debt to owners' equity ratio.

Question

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The debt to owners' equity ratio is calculated by dividing the total debt by the owners' equity. Here, total debt = short-term liabilities + long-term liabilities = $150,000 + $200,000 = $350,000. Owners' equity is $100,000. So, the debt to owners' equity ratio = $350,000 / $100,000 = 3.5 or 350%.

Brown Bag Liquor Emporium Has Short-Term Liabilities of $150,000 and Long-Term