Below are selected data from the financial statements of Pepper Company for 2016 and 2017.
The debt-to-equity ratio for 2017 is:
A) $1.337 to $1 which should be a cause of concern for Pepper Company managers.
B) $1.337 to $1 which should be a cause of concern for stockholders
C) Increasing, which should be a negative sign for credit analysts
D) All of the above.

Question

Below are selected data from the financial statements of Pepper Company for 2016 and 2017.
 The debt-to-equity ratio for 2017 is:
A) $1.337 to $1 which should be a cause of concern for Pepper Company managers. 
B) $1.337 to $1 which should be a cause of concern for stockholders 
C) Increasing, which should be a negative sign for credit analysts 
D) All of the above.

Quizplus · Accepted Answer

Debt to equity for 2017 is 1.337 [$240,000 / ($31,000 + 55,500 + 93,000)].
Debt to equity for 2016 is 0.964 [$190,000 / ($31,800 + 58,250 + 107,000)].
The ratio is increasing which should be a negative sign for credit analysts, and a major cause for concern for stockholders and Pepper Company managers.

Below Are Selected Data from the Financial Statements of Pepper