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Finance: Debt to equity ratio (Essay Sample)

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Finance
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1. Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 64,720,000 / 64,720,000 + 1,840,000,000
= 3.4%
Using short term liabilities;
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 57,490,000 / 57,490,000 + 1,840,000,000
= 3.03%
Using long-term liabilities;
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 2,530,000 / 2,530,000 + 1,840,000,000
= 0.1373%
Debt to equity ratio = Total Liabilities / Total Equity
= 64,720,000 / 1,840,000,000
= 3.5%
Using short-term liabilities;
Debt to equity ratio = Total Liabilities / Total Equity
= 57,490,000 / 1,840,000,000
= 3.12%
Using long-term liabilities;
Debt to equity ratio = Total Liabilities / Total Equity
= 2,530,000 / 1,840,000,000
= 0.1375%
2. Give your recommendation as to whether or not you consider these ratios to be too small or too large. Should our SLP Company increase its debt or take steps to pay off its debt?
Tesla Motors has a debt ratio of 3.4%. This means for every dollar of assets Tesla motors has, 3.4 cents was financed with borrowed money. As a result 96.6 cents came from equity financing. Given that Tesla motors operates in an industry that invests heavily on fixed plant and equipments, the ratios are very low and give the company a great leeway for borrowing in the future. Additionally, not withstanding that it operations are primarily focused in electric vehicles and their power train components,...
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