Solution of Question # 3
Debt to Equity Ratio according to Current Balance Sheet
Total Debts / Total Equity
Total Debts = (Short Term Liabilities + Long Term Liabilities)
Total Equity = (Common Stock + Retained Earnings)
(545+675) / 2320 = 0.5258 times or 53% (Awnser mutiplied by 100 to take it in percentage and rounded off)
After taking loan of 51 Million long term debt will increase 545 + 51 = 596
The new debt to equity ratio will be
(596+675) / 2320 = 0.5478 times or 55%
My Opinion for Q number 4
As debt to equity ratio will increase certainly it put a negative effect on any financial institute whome ABC is applying for further loan. Morever theor current ration is also not satisfactory.
But ABC Company also have positive points
Study case showing electronics market are highly relying on debt and 60:40 is common ratio. So it means Banks are satisfy on this ratio to issue loan and ABC currently have 55:45 ratio means still have a margin of 5%.
Secondly they have a bright prospective as their share is increasing in stock market and they have 20Milion project of A & Company
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