If a business's total assets = $400,000 and total debt = $100,000, the debt-to-equity ratio is

If a business's total assets = $400,000 and total debt = $100,000, the debt-to-equity ratio is

• A. 0.10
• B. 0.33
• C. 0.50
• D. 0.75

Answer: (B)

Debt-to-equity ratio shows how much of a company’s financing comes from creditors compared to owners’ equity. It’s found by dividing total debt by total equity. Since assets are 400,000 and debt is 100,000, equity must be 400,000 minus 100,000 = 300,000. The ratio is 100,000 divided by 300,000, which equals 0.333…, commonly rounded to 0.33. This tells you the company has one third as much debt as equity.

Debt-to-equity ratio shows how much of a company’s financing comes from creditors compared to owners’ equity. It’s found by dividing total debt by total equity. Since assets are 400,000 and debt is 100,000, equity must be 400,000 minus 100,000 = 300,000. The ratio is 100,000 divided by 300,000, which equals 0.333…, commonly rounded to 0.33. This tells you the company has one third as much debt as equity.