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Given the selected financial statement data for KRJ Enterprises presented below, calculate the debt-to-capital ratio, using...

Given the selected financial statement data for KRJ Enterprises presented below, calculate the debt-to-capital ratio, using total financial debt in the numerator. Present your answer in percentage terms, rounded to two decimal places, e.g., 20.00%.

Cash $122

Short-term investments $209

Accounts receivable $438

Inventory $515

Other current assets $171

Fixed assets (net) $1,027

Intangible assets $205

Long-term investments $316

Total assets $3,052

Short-term debt $161

Current portion of long-term debt $57

Accounts payable $259

Accrued liabilities $232

Other current liabilities $140

Long-term debt $516

Other long-term liabilities $100

Total liabilities $1,322

Stockholders’ equity $1,611

Solutions

Expert Solution

The Debt to Capital ratio is widely used measure to determine the financial leverage of company. The calculation of this ratio is made by divinding the interest bearing debt obligation which may be either short term or long term with Total Capital.

Here Total Capital = Interest bearing Debt+ Shareholders equity

The reason why we take only interest bearing debt as numerator is that all debts don't put financial burden to an entity. For e.g. liabilities like Account Payable, accured liabilities donot carry interest obligations and hence donot impact the financial leverage of an entity.

Here calculation of Debt to Capital Ratio is as follow:

Calculation of Debt (only interest bearing debt to be considered and all other liability to be ignored):

Particular Amount
Short term Debt 161
Current Portion of Long term debt 57
Accounts Payable -
Accured Liabilities -
Other Current Liabilities -
Long term Debt 516
Other Long term Liabilities -
Total $ 734

Calculation of Capital is as follow:

Capital = Interest bearing Debt + Equity

= 734+ 1611

= $ 2345

Debt to Capital Ratio = 734/2345

= 0.3130

=31.30%

jeff jeffy answered 1 year ago
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