At the end of Year 1,the following information is available for Grumpy,Happy,and Doc Companies.

-Which company has the highest level of debt risk?
A)Grumpy
B)Happy
C)Doc
D)They all have equal debt risk

Question

At the end of Year 1,the following information is available for Grumpy,Happy,and Doc Companies.
 
-Which company has the highest level of debt risk?
A)Grumpy 
B)Happy 
C)Doc 
D)They all have equal debt risk

Quizplus · Accepted Answer

The debt-to-assets ratio measures the level of debt risk.
Debt-to-assets ratio = Total debt ÷ Total assets
Grumpy: $1,400,000 ÷ $2,000,000 = 70%
Happy: $800,000 ÷ $2,000,000 = 40%
Doc: $1,800,000 ÷ $3,000,000 = 60%
Grumpy has the highest debt-to-assets ratio.

At the End of Year 1,the Following Information Is Available