Compute the three ratios stipulated below. Explain what the use of the ratio. Co

Question

Compute the three ratios stipulated below. Explain what the use of the ratio. Comment on the results.  

c. Liabilities to Stock. Equity

What is the meaning of the ratios?

Comment on the changes form one year to the next.

Computation of ratios Year Four Year Five Total Assets $422,200 $606,000 Total Liabilities $312,400 $496,200 Total Stockholders' Equity $109,800 $109,800 a. Assets to Liabilities b. Liabilities to Assets

c. Liabilities to Stock. Equity

What is the meaning of the ratios?

Comment on the changes form one year to the next.

Explanation / Answer

Answer = A Year Four Year Five Total Assets $4,22,200 $6,06,000 Total Liabilities $3,12,400 $4,96,200 Assets to Liability = Total Assets / Total Liabilites Assets to Liability =                      1.35                    1.22 These Ratio reperesent the For every $ assets how much we have the laibility As per the ratio generated we are know that there is assets are available against liabiltiy there is $ 1.35 Assets are avalable against $ 1 liability Answer = B Year Four Year Five Total Assets $4,22,200 $6,06,000 Total Liabilities $3,12,400 $4,96,200 Liability to Assets = Total laibilities / Total Assets Liability to Assets =                      0.74                    0.82 The liabilities to assets (L/A) ratio is a solvency ratio that examines how much of a company's assets are made of liabilities A high liabilities to assets ratio can be negative; this indicates the shareholder equity is low and potential solvency issues. Rapidly expanding companies often have higher liabilities to assets ratio Answer = C Year Four Year Five Total Liabilities $3,12,400 $4,96,200 Total Stockholder's Equity $1,09,800 $1,09,800 Liability to Stock Ratio = Total liability / Total Equity Liability to Stock Ratio =                      2.85                    4.52 Liability to stock ratio will indicated the how much liability is available against every $ equity available to shareholders It shows the relation between the portion of assets financed by creditors and the portion of assets financed by stockholders

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