Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Debt and price-earnings ratios
Alphabet (formerly known as Google) (GOOG) is a technology company that offers users Internet search and e-mail services. Google also developed the Android operating system for use with cell phones and other mobile devices. The following data (in millions) were adapted from a recent financial statement of Alphabet.

Comparing Years 1 and 2, should creditors feel more or less safe in Year 2?

To determine

Concept Introduction:

Debt Ratio:

Debt ratio is the relationship between the Total liabilities and Total Assets of a corporation. Debt ratio shows the part of assets financed by debts. It is calculated by dividing total liabilities by total assets. The formula of debt ratio is as follows:

  Debt Ratio = Total LiabilitiesTotal Assets

To Indicate:

The Safety for creditors in year 2 as compared with year 2


The Debt Ratios for year 1 and 2 are calculated as follows:

    $ in MillionsYear 1Year 2
    Total Liabilities (A) $30,624 $27,996

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