Question

Simon Company's year-end balance sheets follow. Current Yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 28,893 88,920 108,544 9,496 269,002 $504,855 $ 34,469 $ 36,646 59,712 49,355 82,931 52,032 9,140 4,072 248,968 231,795 $ 435,220 $ 373,980 $ 124,452 $ 74,288 $ 49,355 96,811 162,500 121,092 $504,855 103, 104 83,458 162,500 162,500 95,328 78,587 $ 435,220 $ 373,980 The company's income statements for the Current Year and 1 Year Ago, follow For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income tax expense Total costs and expenses Net income Earnings per share Current Yr $ 656,312 $ 400,350 203,457 11, 157 8,532 623,496 $ 32,816 1 Yr Ago $ 517,912 $336,643 131,032 11,912 7,769 487,356 $ 30,556 $ 2.02 $ 1.88 For both the Current Year and 1 Year Ago, compute the following ratios: (2) Debt-to-equity ratio. Debt-To-Equity Ratio Choose Numerator: 1 Choose Denominator: 7 = Debt-To Equity Ratio Debt-to-equity ratio to 1 1 Current Year: to 1 1 Year Ago: 1

Answer 1

Debt to equity ratio = total liabilities/total sharehders equity

This helps to understand how much debt is taken and analyse the ratio of debt to the equity.

For the current year,

Total liabilities = 124,452 + 96,811

Total liabilities = $ 221,263

Total equity = 162,500 + 121,092

Total equity = $ 283,592

Debt to equity for current year = 221,263/283592

Debt to equity = 0.78

For one year ago,

Total liabilities = 74,288 + 103,104

Total liabilities = $ 177,392

Total equity = 162,500 + 95,328

Total equity = $ 257,828

Debt to equity = 177,392/257,828

Debt to equity = 0.69

SUMMARY:

For current year = 0.78

For one year ago = 0.69