Question

Stockbridge Industries has a total assets turnover ratio of 4.1x and net annual sales of $49.20 million. If stockbrige has $5 million total debt on its balance sheet, what is the firm's debt ratio

Answer 1

Answer:

Debt ratio = 0.4167 or 41.67%

Explanation:

The total assets turnover is the ratio that tells us the level of net sales generated on each $1 of invested total asset. Thus the formula for total assets turnover is,

Total assets turnover = Net Sales / Average total assets

Using the formula and the available values, we calculate the total assets to be,

4.1 = 49.20 / Average Total assets

Average total assets = 49.2 / 4.1

Average total assets = $12 million

The debt ratio calculates the value of debt as a percentage of total assets.

Debt ratio = Total debt / Total assets

Debt ratio = 5 / 12

Debt ratio = 0.4167 or 41.67%