Multiple Choice
On its December 31 balance sheet, XYZ Company reported total assets of $880,000 and total liabilities of $560,000. What is the company's debt to equity ratio?
14. Financial Statement Analysis
Ratios: Debt to Equity Ratio
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At the beginning of the year, ABC Company had total assets of $600,000, Total Liabilities of $360,000, and Total Equity of $240,000. At the end of the year, total assets had increased to $800,000, Total Liabilities decreased to $320,000 and Total Equity increased to $480,000. What was the change in the company's debt to equity ratio during the year?
A
Increase by 0.83
B
Increase by 0.20
C
Decrease by 0.83
D
Decrease by 0.20
E
No change in the debt to equity ratio
Verified step by step guidance1
Calculate the initial debt to equity ratio at the beginning of the year using the formula: \( \text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Equity}} \). Substitute the given values: \( \frac{360,000}{240,000} \).
Calculate the debt to equity ratio at the end of the year using the same formula: \( \frac{\text{Total Liabilities}}{\text{Total Equity}} \). Substitute the new values: \( \frac{320,000}{480,000} \).
Determine the change in the debt to equity ratio by subtracting the end of year ratio from the beginning of year ratio.
Analyze the result to determine if the change is an increase or decrease, and by how much.
Compare the calculated change to the given options to identify the correct answer.
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