Question

Selected data from Kamal Company's financial statements is as follows:

In $000's

2017

2016

	Current liabilities	$ 5,130	$ 5,202
	Long-term debt	1,419	1,322
	Stockholders' equity	12,632	11,166
	Interest and principal payments	300	400
	Net income	2,430	2,280
	Interest expense	196	172
	Income taxes	1,837	1,524
	Dividends paid	750	750

Kamal Company's debt-to-equity ratio for 2017 is

Select one:

A. an indicator that Kamal Company's ability to meet current interest payments to creditors is increasing.

B. increasing slightly from 2016 to 2017.

C. an indicator that Kamal Company has relied on stockholders for funds more in 2017 than in 2018.

D. an indicator that for every $1 of capital that stockholders provided, creditors provided nearly $0.52 in 2017.

Answer 1

Answer

• The correct answer is Option ‘D’ Debt Equity ratio for 2017 is “an indicator that for every $1 of capital that stockholders provided, creditors provided nearly $ 0.52 in 2017
• This is because Debt to Equity ratio= Total debts / Total Equity
  = (5130 + 1419) / $ 12632
  = 6549 / 12632
  = 0.518…
  = 0.52