The following data is from Delta's common size financial statement:
Earnings after taxes 18%
Equity 40%
Current assets 60%
Current liabilities 30%
Sales $300
Total assets $1,400
What is Delta's total-liabilities-to-equity ratio?
A) 1.5.
B) 1.0.
C) 2.0.
The correct answer was A) 1.5.
Schewser's explanation: If equity = 40% of assets, total liabilities = 60% of assets, thus 60 / 40 = 1.5.
I thought its total debt divided by total equity i.e. 30% / 40% = .75, which isn't provided in the answer selections
Why is 60 in the numerator as total debt?
Earnings after taxes 18%
Equity 40%
Current assets 60%
Current liabilities 30%
Sales $300
Total assets $1,400
What is Delta's total-liabilities-to-equity ratio?
A) 1.5.
B) 1.0.
C) 2.0.
The correct answer was A) 1.5.
Schewser's explanation: If equity = 40% of assets, total liabilities = 60% of assets, thus 60 / 40 = 1.5.
I thought its total debt divided by total equity i.e. 30% / 40% = .75, which isn't provided in the answer selections
Why is 60 in the numerator as total debt?