Question

Blue Sky Drone Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $2.50 million on which it pays a 7% interest rate. To analyze a company’s financial leverage situation, you need to measure the firm’s debt management ratios. Based on the preceding information, what are the values for Blue Sky Drone’s debt management ratios?

Answer 1

Answer:

The values for Blue Sky Drone’s debt management ratio is 0.35

Explanation:

In order to calculate the values for Blue Sky Drone’s debt management ratios we would have to make the following calculation:

debt management ratio=Total Debt / Total Assets

According to the given we have that it reported total debt of $2.50 million.

To calculate the total assets we would have to use the following formula:

Total Asset Turnover Ratio = Net Sales / Total Assets

3.50=$25,000,000/Total Assets

Total Assets=$25,000,000/3.50

Total Assets=$7,142,857

Therefore, debt management ratio=$2,500,000/$7,142,857

debt management ratio=0.35

The values for Blue Sky Drone’s debt management ratio is 0.35