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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Financial leverage

MicrosoCortrepotied (MSFT) reported the following data (in millions) for a tern year


Apple Inc. has a financial leverage metric of 2.26. Does Apple or Microsoft use more financial leverage in its operations?

To determine

Concept Introduction:

Debt to equity ratio is calculated to determine the leverage position of the company. It compares the total liabilities of the company with it total shareholders' equity. The debt to equity ratio is calculated by dividing the Total Liabilities by Total Stockholder's Equity. The formula to calculate Debt to equity ratio is as follows:

  Debt to equity ratio = Total liabilitiesTotal Stockholder’s Equity

To Indicate:

If the company uses more financial leverage

Explanation

Statement showing calculation of Profit Margin, Investment Turnover and Return on Investment:

    Operating Income (A) $ 12,193
    Sales (B) $ 93,580
    Profit Margin (C) = A/B = 13.03%
    Sales (D) $ 93,580
    Av...

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