Question

Company A has liabilities of $6,773,000 and stockholders' equity of $3,647,000 at the end of the current year, and sales revenue of $9,800,000 and net income of $899,080 for the year. Company B has assets of $1,680,000 and stockholders' equity of $978,750 at the end of the current year, and sales revenue of $1,950,000 and net income of $351,000 for the year.

Required:

Part a. Calculate the debt-to-assets ratio for each company.

Part b. Identify the company that has greater financing risk and explain why.

Answer

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