If Total Debt is 320,000 and Total Equity is 800,000, what is the debt-to-equity ratio?

If Total Debt is 320,000 and Total Equity is 800,000, what is the debt-to-equity ratio?

• A. 0.25
• B. 2.50
• C. 0.40
• D. 1.00

Answer: (C)

The debt-to-equity ratio shows how much debt a company has compared to its equity, by dividing total debt by total equity. Here, 320,000 of debt divided by 800,000 of equity equals 0.40. This means there is 0.40 dollar of debt for every dollar of equity, or debt is 40% of equity. Since the ratio is less than 1, it indicates more equity than debt, reflecting a moderate level of leverage. Among the given options, 0.40 is the correct value.

The debt-to-equity ratio shows how much debt a company has compared to its equity, by dividing total debt by total equity. Here, 320,000 of debt divided by 800,000 of equity equals 0.40. This means there is 0.40 dollar of debt for every dollar of equity, or debt is 40% of equity. Since the ratio is less than 1, it indicates more equity than debt, reflecting a moderate level of leverage. Among the given options, 0.40 is the correct value.