(Calculating debt ratio)
Fast Solutions, Inc. has the following financial structure:
Accounts payable $ 500,000
Short-term debt 250,000
Current liabilities $ 750,000
Long-term debt 750,000
Shareholders' equity 500,000
Total $2,000,000
- Compute Fast's debt ratio and interest-bearing debt ratio.
- If the market value of Fast's equity is $2,000,000 and the value of the firm's debt is equal to its book value, assuming excess cash is zero, what is the debt-to-enterprise-value ratio for Fast?
- If you were a bank loan officer who was analyzing whether or not to loan more money to Fast, which of the ratios calculated in parts a and b is most relevant to your analysis? Why?