In 2015, Bubble Inc. had net income of $500,000, assets of $5,000,000, sales of $2,000,000, and...
In 2015, Bubble Inc. had net income of $500,000, assets of $5,000,000, sales of $2,000,000, and equity of $2,000,000. In 2016, Bubble Inc. had net income of $600,000, assets of $7,000,000, sales of $1,300,000, and equity of $1,700,000. Is Bubble Inc’s2016 debt to total asset better than its 2015 debt to total assets?
No
Yes
Stayed the same
Not enough information to answer
Homework Answers
| 2016 | 2015 | |||||||||||||||
| Debt | a | $ 53,00,000 | $ 30,00,000 | |||||||||||||
| Assets | b | $ 70,00,000 | $ 50,00,000 | |||||||||||||
| Debt to assets ratio | a/b | 0.76 | 0.60 | |||||||||||||
| Is Bubble Inc’s 2016 debt to total asset better than its 2015 debt to total assets? | ||||||||||||||||
| No | ||||||||||||||||
| Workings: | ||||||||||||||||
| Debt to total asset ratio indicates portion of total assets financed by creditors. So, lower figure will be better for any entity. | ||||||||||||||||
| In 2016, this ratio increased.It means share of creditors increased and share of owner's decreased.So, debt to assets of 2016 is not better than 2015. | ||||||||||||||||
| Debt | = | Total assets - Total Equity | ||||||||||||||
| So, | ||||||||||||||||
| Debt of : | ||||||||||||||||
| 2016 | = | Total assets - Total Equity | ||||||||||||||
| = | $ 70,00,000 | - | $ 17,00,000 | |||||||||||||
| = | $ 53,00,000 | |||||||||||||||
| 2015 | = | Total assets - Total Equity | ||||||||||||||
| = | $ 50,00,000 | - | $ 20,00,000 | |||||||||||||
| = | $ 30,00,000 | |||||||||||||||
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In 2015, Bubble Inc. had net income of $500,000, assets of
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