17-4b Ratio of Liabilities to Stockholders' Equity The ratio of liabilities to stockholders' equity measures how much of the company is financed by debt and equity. It is computed as follows: Ratio of Liabilities to Stockholders' Equity = Total Liabilities Total Stockholders' Equity To illustrate, the ratio of liabilities to stockholders' equity for Lincoln Company is computed as follows: Total liabilities 20Y6 $310,000 20Y5 Total stockholders' equity Ratio of liabilities to $829,500 $443,000 $787,500 stockholders' equity 0.4 ($310,000+ $829,500) 0.6 ($443,000+ $787,500) Link to Nike For a recent five-year period, Nike's average ratio of liabilities to stockholders' equity was 0.6. Lincoln's ratio of liabilities to stockholders' equity decreased from 0.6 to 0.4 during 20Y6. The lower ratio indicates that Lincoln's liabilities as a proportion of equity is decreasing. This is an improvement and indicates that the margin of safety for Lincoln's creditors is improving. E F G H Current Assets Current Liabil tes = Calculated Value Numerator Denominator = Calculated Value || || | || | | \| || | | \| || | | | | | | | | | | | | || A B D 14 15 1. Working capital: 16 17 Ratio 18 19 2. Current ratio 20 21 3. Quick ratio 22 23 4. Accounts receivable 24 turnover 25 26 5. 27 Number of days' sales in receivables 28 29 6. Inventory turnover 30 31 7. Number of days' 32 33 34 8. 35 sales in inventory Ratio of Fixed assets to long-term liabilities 36 37 9. 38 39 40 10. Ratio of liabilities to stockholders' equity Times interest earned 41 42 11. Asset turnover 43 44 12. Return on total assets 45 46 13. 47 Return on stockholders' equity 48 49 14. 50 Return on common stockholders' equity 51 52 15. Earnings per share 53 on common stock 54 55 16. 56 57 17. 58 Price-earnings ratio Dividends per share of common stock 59 60 18. Dividend yield 61