Debt Ratio: It is the ratio between total assets of the company and the total liabilities. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.
Debt to Equity Ratio: This ratio reflects the relationship of company’s total liabilities to total equity. It is used to measure financial leverage. Higher debt to equity ratio means that the company has financed its assets by debts more than the owner’s capital.
1.
To Compute: Debt ratio and debt to equity ratio at May 31, 2018, for company A.
2.
To Evaluate: The ability of company A to pay its liabilities.
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