How is the long-term debt to assets ratio calculated?



Q29. Long-term debt to assets ratio
How is the long-term debt to assets ratio calculated?

A29.
Long-term debt to assets ratio
= Long-term liabilities / Total assets

[Entity 29-a]
Current liabilities = $160,000
Long-term liabilities = $200,000
Total liabilities = $360,000
Total stockholders’ equity = $265,000
Total assets = $625,000
Long-term debt to assets ratio
= $200,000 / $625,000 = 0.32

[Entity 29-b]
Current liabilities = $170,000
Long-term liabilities = $210,000
Total liabilities = $380,000
Total stockholders’ equity = $320,000
Total assets = $700,000
Long-term debt to assets ratio
= $210,000 / $700,000 = 0.30

[Note]
Long-term debt to assets ratio is lower for Entity 29-b than for Entity 29-a.
Thus Entity 29-b is better prepared in long-term solvency than Entity 29-a.

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