Sam's Smartphone Accessories Inc.(SMA)has fixed assets of $5 million,current assets of $2 million,long-term liabilities of $2 million,current liabilities of $1 million,and owners' equity of $2 million.What is SMA's debt-to-equity ratio?
A)1.5
B)0.9
C)1.2
D)0.4
E)0.8

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is calculated by dividing total liabilities by owners' equity. Total liabilities are the sum of current liabilities ($1 million) and long-term liabilities ($2 million), which equals $3 million. Owners' equity is $2 million. Therefore, the debt-to-equity ratio is $3 million / $2 million = 1.5.