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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Debt and price-earnings ratios
The Home Depot. Inc. (HD) operates over 2.200 home improvement retail stores and is a competitor of Lowe's (LOW).
The following data (in millions) were adapted from recent financial statements of The Home Depot.


Are Home Depot's operations financed primarily with liabilities or equity?

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:

If the company is primarily finance with liabilities or equity

Explanation

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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