Wireless Communications has a total asset turnover of 2.66, total liabilities of $1,004,162, and sales revenues of $7,025,000. What is Wireless's debt ratio?
A) 38.0%
B) 14.3%
C) 26.7%
D) 81.1%

Question

Quizplus · Accepted Answer

The debt ratio is calculated as total liabilities divided by total assets. First, find the total assets using the total asset turnover formula: Total Asset Turnover = Sales / Total Assets. Rearranging this formula gives Total Assets = Sales / Total Asset Turnover = $7,025,000 / 2.66 = $2,641,353. Then, calculate the debt ratio: Debt Ratio = Total Liabilities / Total Assets = $1,004,162 / $2,641,353 = 0.3802 or 38.0%.

Wireless Communications Has a Total Asset Turnover of 2