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Casey Cordell is the owner of a digital photography service in Madison, Wisconsin. The company has...

Casey Cordell is the owner of a digital photography service in Madison, Wisconsin. The company has been profitable every year of its existence. Its debt ratio is currently 68 percent, its current ratio is 1.1, and its debt-to-equity ratio is 72.2 percent. Do these financial numbers cause any reason to be concerned? Why or why not?

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Answer #1

Company is profitable. This is good

Debt equity ratio 68%, which is less than 1. This is good as debt equity ratio less than 1 means reasonable leverage.

Current ratio is 1.1 This is good as current ratio more than 1 means good liquidity.

Debt ratio 68% means equity 32% and total liabilities 68%

Debt ratio includes all liabilities whereas debt equity ratio includes only debt Debt=72.2%*32%=23.104%

Debt=23.104%, Other liabilities 44.896% Equity 32%

Hence there is no cause to be concerned

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