A business shows total assets of $321,000 and total liabilities of $160,500. The debt/equity ratio is?

A business shows total assets of $321,000 and total liabilities of $160,500. The debt/equity ratio is?

• A. 1:1
• B. 2:1
• C. 1:2
• D. 3:2

Answer: (A)

Debt/equity ratio shows how much debt a business has relative to its owner's equity. It’s calculated by dividing total liabilities by total equity, and total equity is found by subtracting liabilities from assets. Here, assets are 321,000 and liabilities are 160,500. So equity = 321,000 − 160,500 = 160,500. The ratio is 160,500 ÷ 160,500 = 1, which is expressed as 1:1. This means the company has an equal amount of debt and owner’s equity, indicating balanced leverage.

Debt/equity ratio shows how much debt a business has relative to its owner's equity. It’s calculated by dividing total liabilities by total equity, and total equity is found by subtracting liabilities from assets.

Here, assets are 321,000 and liabilities are 160,500. So equity = 321,000 − 160,500 = 160,500. The ratio is 160,500 ÷ 160,500 = 1, which is expressed as 1:1. This means the company has an equal amount of debt and owner’s equity, indicating balanced leverage.