Question

Refer to the statements for Google in Appendix A. For the year ended December 31, 2015, what was its debt-to-equity ratio? What does this ratio tell us?

Short answer

The debt-equity ratio of google for the year ended December 31, 2015, is 0.23

Step-by-step solution

Step 1: Meaning of the Debt-to-equity ratio

The debt-equity ratio specifies the portion of equity and debt component used to finance the company's assets.

Calculation of Google's debt-to-equity ratio for the year ended December 31, 2015

$\begin{array}{c}\mathbf{Debt}\mathbf{}\mathbf{to}\mathbf{}\mathbf{equity}\mathbf{}\mathbf{ratio}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{debt}}{\mathbf{Total}\mathbf{equity}}\\ \mathbf{=}\frac{\mathbf{(}\mathbf{Total}\mathbf{}\mathbf{assets}\mathbf{-}\mathbf{Total}\mathbf{}\mathbf{equity}\mathbf{)}}{\mathbf{Total}\mathbf{}\mathbf{equity}}\\ \mathbf{=}\frac{\mathbf{(}\mathbf{\$}\mathbf{147}\mathbf{,}\mathbf{461}\mathbf{-}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{331}\mathbf{)}}{\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{331}}\\ \mathbf{=}\mathbf{0}\mathbf{.}\mathbf{23}\end{array}$

A company's debt-to-equity ratio is 0.23, meaning that debtholders contributed $0.23 for each $1 contributed by equity holders.