Question

In: Finance

Identify a matching firm in your firm's industry with similar size as your firm (use 2016...

Identify a matching firm in your firm's industry with similar size as your firm (use 2016 total assets to choose a matching firm). Compare your firm's long term debt/total assets and long term debt/equity ratio with your matching firm

My firm (long-term debt to total assets ratio)

Matching firm (long-term debt to total assets ratio)

2015

0.0037

0.0439

2016

0.0010

0.0198

2017

0.0050

0.0000

2018

0.0103

0.0000

2019

0.2422

0.0000

Average

0.05244

0.012746

My firm (long-term debt to Equity ratio)

Matching firm (long-term debt to Equity ratio)

2015

0.0055

0.0717

2016

0.0019

0.0314

2017

0.0212

0.0000

2018

0.1145

0.0000

2019

-1.5283

0.0000

Average

-0.2770

0.0206

Solutions

Expert Solution

If we compare My firms and matching firms (L-T debt to total asset ratio, we can see that, the firm selected by me , My firm has shown steady incere in the debt to total assets from 2018 onwards. Net debt to total assets is a leverage ratio that determines the gross debt to a company's own assets. Using this method, investors will equate the profitability of one business with that of other firms in the same industry. This data may represent a company's financial stability.

If we look at LT debt to equity ratio , we find

Lt debt to equity sharply fell in 2019 for 'My firm"

if we look in 2016 total assets to choose a matching firm

So the chosen my firm has lower D to E and D to Total Asset ratio denoting it is a  company with a lower financial leverage  which indicates that, even if the company does have debt, its operations and sales are generating enough revenue to grow its assets through profits.

Thanks


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