Answer:
If a firm has a debt ratio of 54%, then the firm's debt to equity ratio is 117%
Explanation:
The Debt Ratio is obtained dividing Liabilities / Assets. Then, a result of 54% means that 54% of the asset is composed by liabilities.
Liabilities 54
Assets 100
Debt Ratio= 54%
By the general accounting formula we know that
Assets= Liabilities+Equity. Then,
Assets(100)=Liabilities(54)+Equity(46)
If the Debt to equity ratio is calculated by the division of liabilities/Equity- Then:
Liabilities 54
Equity 46
Debt to Equity Ratio = 117%
This means that for 1 dollar on the Equity the company has 1 dollar plus 17% or 17 cents on the Liabilities.
