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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Ratio of liabilities to stockholders’ equity

The Home Depot, Inc., is the world’s largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Home Depot operates over 2,200 Home Depot® stores that sell a wide assortment of building materials and home improvement and lawn and garden products.

The Home Depot recently reported the following balance sheet data (in millions):

Chapter 1, Problem 1.26EX, Ratio of liabilities to stockholders equity The Home Depot, Inc., is the worlds largest home

  1. a. Determine the total liabilities at the end of Years 2 and 1.
  2. b. Determine the ratio of liabilities to stockholders’ equity for Year 2 and Year 1. Round to two decimal places.
  3. c. What conclusions regarding the margin of protection to the creditors can you draw from (b)?

a)

To determine

Ratio of liabilities to stockholders' equity: Ratio of liabilities to stockholders' equity shows the relationship between the liabilities and the owner's equity. This ratio measures the claims of creditors over the claims of owners in financing the assets. A lower ratio indicates that the company has good ability to pay off the creditors’ obligations.

Ratio of liabilities tostockholders' equity}=Total LiabilitiesTotal Owner's Equity

Total liabilities at the end of the years 2 and 1 for Company THD.

Explanation

Determine the total liabilities at the end of the years 2 and 1 for Company THD.

  Year 2 Year 1
Total Assets $40,518 $40,125
Total Owner's equity $22,620 $21,236
Total Liabilities (1)   $17,898 (2)   $18,889

Table (1)

Working note:

Calculate the liabilities at the end of the years 2 and 1 for Company THD...

b)

To determine

The ratio of liabilities to stockholders' equity of Company THD.

c)

To determine

To derive: A conclusion regarding the margin of protection to the creditors from the ratio of liabilities to stockholders' equity of Company THD.

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