CFA Level I · CFA Level I Exam · Financial Analysis Techniques
A company has total assets of 900, total equity of 360, and total liabilities of 540. The debt-to-equity ratio, defined as total liabilities divided by total equity, is closest to:
The ratio is 1.50, calculated as total liabilities of 540 divided by total equity of 360. Dividing liabilities by assets gives 0.60, and equity by assets gives 0.40, which are different solvency measures, not debt-to-equity.
- A0.40
- B0.60
- C1.50Correct
Explanation
Debt-to-equity = 540 / 360 = 1.50. The 0.60 figure is liabilities/assets (540/900), a different measure. The 0.40 figure is equity/assets (360/900).
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