Chapter 13, Problem 9DQ

To determine

Financial statements:

Financial statements refer to those statements, which are prepared by the company at the end of the accounting period in the particular formats which are prescribed in accounting to show its financial position.

Debt Equity Ratio:

It shows the debt capital borrowed by the company from outside as compared to the shareholder’s funds issued by the company.

The formula to calculate Debt Equity Ratio is,

  $\text{Debt}\text{Equity}\text{Ratio}=\frac{\left(\begin{array}{l}\text{Short}\text{Term}\text{Debt}+\text{Long}\text{Term}\text{Debt}\\ +\text{Preference}\text{Shareholder}\end{array}\right)}{\text{Equity}\text{Shareholder's}\text{Fund}}$

To identify: The importance of debt and equity ratio for financial statement analysis.