Question

The ratio of liabilities to stockholders’ equity for a company is as follows… ______________________2019______________2018______ Total liabilities...

The ratio of liabilities to stockholders’ equity for a company is as follows…

______________________2019______________2018______

Total liabilities $.  550,000 $400,000

Total Stockholders’ equity $ 900,000 $700,000

Ratio of liabilities to

stockholders’ equity .56 .57

In which year, was the company more solvent?

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Answer #1

Solvency of Company is determined by Debit to Equity ratio, higher the ratio less solvent the company would be.

Debt Equity Ratio = Debt/Equity

Particulars 2019 2018
Liabilities          550,000          400,000
Equity          900,000          700,000
Debt to Equity                 0.61                 0.57

So according to above table, in year 2018 Debt equity ratio is less than debt equity ratio in year 2019,therefore year 2018 is more solvent.

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