Survey of Accounting (Accounting I)
Solutions
Survey of Accounting (Accounting I)
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.
Comparing Years 1 and 2, should creditors feel more or less safe in Year 2?
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:
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 Millions | Year 1 | Year 2 |
| Total Liabilities (A) | $30,624 | $27,996 |
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