Karen Price has determined that her net worth is $56,000, excluding her home. She owes $80,000 on her mortgage and $13,000 on a car loan. What is Karen's debt-to-equity ratio?

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Laila Gomez

Business

28 March, 23:37

Karen Price has determined that her net worth is $56,000, excluding her home. She owes $80,000 on her mortgage and $13,000 on a car loan. What is Karen's debt-to-equity ratio?

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Anvil · Answer 1

Net worth is the difference between a person's (assets - liabilities)

Based on the balance sheet equation; Assets = Liabilities + Equity, meaning that Assets - Liabilities = Equity.

With the above two equations, Net worth = Equity = $56,000

Debt-to - Equity ratio = Debt / Equity

Note: $80,000 mortgage will not be included as debt to avoid double counting error since it is is a pay towards a home (asset) already incorporated in the $56,000 net worth.

So, D/E = 13,000 / 56,000

D/E = 0.2321