A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every:
A) $1 in equity.
B) $1 in total sales.
C) $1 in current assets.
D) $.53 in equity.
E) $.53 in total assets.

Question

Quizplus · Accepted Answer

The total debt ratio is calculated as total debt / total assets. Therefore, if the total debt ratio is .47, then the firm has 47 cents of debt for every dollar of total assets. Since equity is calculated as total assets minus total debt, we can say that for every dollar of assets, the firm has $.53 of equity. Therefore, the answer is D - $.53 in equity.

A Firm Has a Total Debt Ratio of