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Last year K. Billingsworth & Co. had earnings per share
of $4 and dividends per share of $2. Total retained earnings increased by $12 million
during the year, while book value per share at year-end was $40. Billingsworth has no
preferred stock, and no new common stock was issued during the year. If its year-end
total debt was $120 million, what was the company’s year-end total debt to total capital
ratio?

Sagot :

abiolataiwo2015

The company’s year-end total debt to total capital ratio is 33.33%

First step is to calculate the Earning per share

Earning per share = $4  - $2  

Earning per share = $2 per share

Second step is to calculate the increase in retained earnings

Increase in retained earnings=$12 million/$2 per share

Increase in retained earnings=6 million shares

Third step is to calculate the Total equity

Total equity=$40 x 6 million

Total equity = $240 million

Fourth step is to calculate the Total Capital

Total Capital=$120 million + $240 million

Total Capita= $360 million

Now let determine the total debt to total capital

ratio

Debt to capital ratio = $120 million/$360 million *100

Debt to capital ratio =33.33%

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