Question

Triumph's Companies, a home improvement store chain, reported the following summarized figures:

Triumph's Companies, a home improvement store chain, reported the following summarized figures 囲(Click the icon to view the income statement)囲(Click the icon to view the balance sheets.) Triumph's has 30,000 common shares outstanding during 2018. Read the requirements. Requirement 1. Compute the debt ratio and the debt to equity ratio at May 31, 2018, for Triumph's Companies. Begin by selecting the formula to calculate Triumph's Companies' debt ratio. Then enter the amounts and calculate the debt ratio for 2018. (Round the ratio to one tenth of a percent, XX%.) Debt ratio =

Answer 1

1.

Debt ratio = Total liabilities/Total assets

= 37,800/83,400

= 0.45

Debt to Equity Ratio = Total liabilities/Equity

= 37,800/45,600

= 0.83

2.

Debt ratio is 0.45 which indicates that total liabilities are 45% of total assets i.e. for every $45 liabilities, there are $100 of assets. Debt ratio of 0.45 clearly shows that debt is quite manageable and under control.

Debt to equity ratio is 0.83 which means that total liabilities are 83% of stockholders' equity i.e for every $83 of total liabilities, stockholders' equity is $100. Own funds are more than funds provided by lenders.

Both the Debt ratio and Debt to Equity ratio show that Triumph's ability to pay off its liabilities is strong. It will not default in payment of its liabilities.

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