- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 22. Understanding Balance Sheets
- Subject 5. Uses and Analysis of the Balance Sheet

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**CFA Practice Question**

Use the following data from Delta's common size financial statement to answer the question.

Equity = 40%

Current assets = 60%

Current liabilities = 30%

Sales = $300

Total assets = $1,400

Earnings after taxes = 18%

Equity = 40%

Current assets = 60%

Current liabilities = 30%

Sales = $300

Total assets = $1,400

What is Delta's total-debt-to-equity ratio?

A. 2.5

B. 1.5

C. 1.0

**Explanation:**If equity = 40%, debt must = 60%, thus 60/40 = 1.5.

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**User Contributed Comments**
3

User |
Comment |
---|---|

humphrey |
D-E ratio is long term debt over equity, total liability is 60% of asset, current liability 30%, shouldn't D-E ratio be (60%-30%)/40% = .75? |

maflu |
humphrey: it asks total-debt-to-equity, not debt-to-equity ratio! |

Inaganti6 |
I like how they give you so much extraneous data, just so they can mess with your head. They really, really, really don't want you to pass this exam. |