Question

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets		2016
Cash and securities		$2,145
Accounts receivable		8,970
Inventories		12,480
Total current assets		$23,595
Net plant and equipment		$15,405
Total assets		$39,000
Liabilities and Equity
Accounts payable		$7,410
Accruals		4,290
Notes payable		5,460
Total current liabilities		$17,160
Long-term bonds		$7,800
Total liabilities		$24,960
Common stock		$5,460
Retained earnings		8,580
Total common equity		$14,040
Total liabilities and equity		$39,000
Income Statement (Millions of $)		2016
Net sales		$58,500
Operating costs except depreciation		54,698
Depreciation		1,024
Earnings before interest and taxes (EBIT)		$2,779
Less interest		829
Earnings before taxes (EBT)		$1,950
Taxes		683
Net income		$1,268
Other data:
Shares outstanding (millions)		500.00
Common dividends (millions of $)		$443.63
Int rate on notes payable & L-T bonds		6.25%
Federal plus state income tax rate		35%
Year-end stock price		$30.42

What is the firms total debt to total capital ratio? Do not round your intermediate calculations.

The correct answer is 48.0% SHOW WORK

Answer 1

Total debt to total capital ratio refers to the ratio which depicts that what is the amount of debt that has been taken up by the company per unit of capital.

Formula for total debt to total capital ratio= Debt/(Shareholder's Equity+Debt)

Following is the computation of above said ratio as follows:

= Debt/(Shareholder's Equity+Debt)

= Notes Payable+Long-term bonds/(Shareholder's Equity+Debt)

= $5460+$7800/(Shareholder's Equity+$5460+$7800)

= $5460+$7800/($14040+$5460+$7800)

=$13260/($27300)

=.4857 or 48.57%.

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