Answer:
0.38 times
Explanation:
Debt ratio measures the degree to which a corporation uses debt component for its financing needs. It is the ratio of total liabilities to total assets.
Given:
Equity = $1.01 million
Current assets = $199,500
Current ratio = 1.9
Debt equity ratio = Long term debt ÷ Equity
Long term debt = Debt equity ratio × Equity
= 0.5 × 1.01 million
= $505,000
Compute current liabilities with the help of current ratio
Current ratio = Current assets ÷ Current liabilities
Current liabilities = Current assets ÷ current ratio
= 199,500 ÷ 1.9
= $105,000
Total liabilities = Long term debt + current liabilities
= 505,000 + 105,000
= $610,000
Total assets = Equity + Total liabilities
= 1,010,000 + 610,000
= $1,620,000
Debt ratio = Total liabilities ÷Total assets
= 610,000 ÷ 1,620,000
= 0.38 times
