Debt Ratio, Debt-to-Equity Ratio

Busch Company's balance sheet shows total liabilities of $660,000, total equity of $166,000, and total assets of $826,000.

Required:

1. Calculate the debt ratio. Round to two decimal places.

2. Calculate the debt-to-equity ratio. Round to two decimal places.

3. CONCEPTUAL CONNECTION Based on the ratios calculated in Requirements 1 and 2, comment on the riskiness of Buschs financing decisions.

1. Busch has chosen to pursue a rather high risk financing strategy. Busch should calculate and carefully manage its times-interest-earned ratio to ensure that its pretax earnings are sufficient to make any required interest payments on its large debt.
2. Busch has chosen to pursue a rather low risk financing strategy. Busch should calculate and carefully manage its profitability ratio to ensure that its pretax earnings are sufficient to make any dividend payments.
3. Busch has chosen to pursue a rather low risk financing strategy. Busch should calculate and carefully manage its profitability ratio to ensure that its pretax earnings are sufficient to make any dividend payments.