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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

Debt and price-earnings ratios
For each of the following companies, indicate whether you think the ratio of liabilities to total assets is more than 50%. Also, indicate whether you think the price-earnings ratio is above 10.

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

Price Earnings Ratio:

The price earnings ratio shows the relationship between price of the share and earnings per share. It is calculated with the help of following formula:

  Price Earnings Ratio=Market price per shareEarnings per share

To Indicate:

The Debt ratio and Price earnings ratio for each of the given Company

Explanation

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

The price earnings ratio shows the relationship between price of the share and earnings per share. It is calculated with the help of following formula:

  Price Earnings Ratio=Market price per shareEarnings per share

The Debt ratio and Price earnings ratio for each of the given Company is indicated as follows:

    Company Debt Ratio More t

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