3. Calculate Debt-Equity Ratio of ABC Company before and after taking loan.
ANSWER:-
Given Data:
Other caculations:
Total Debt ratio = total assets – total equity /total assets
Total debt ratio = 3, 540 – 2, 320 / 3, 540*100
Total debt ratio = 1, 220 / 3, 540*100
Total debt ratio = 0.344*100
Total debt ratio = 34%
So, the company uses 34% debt.
And,
100 % – 34% = 66%
Total Stockholders’ Equity = 2, 320
Debt-Equity Ratio = Long term liabilities / Equity
Debt-Equity Ratio = 34% / 66% = 0.515
Debt –Equity Ratio (before loan) = 0.515
Now after loan, =?
loan = 51 million
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Comment on as how the change in Debt to Equity Ratio would affect the decision of the financial institution if the company requests for a further loan.
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