Out of the way world. I've got my sassy pants on today." - Unknown
What Does that Look Like?
The basic financial statements are useful to bankers, creditors, stockholders and others in analyzing and interpreting the financial performance and condition of a company. One tool we will share is useful in analyzing the ability of a company to pay its creditors.
The relationship between liabilities and stockholders' equity is expressed as a ratio of liabilities to stockholder's equity, is computed as following example:
Ratio of Liabilities to Stockholders' Equity = Total Liabilities/Total Stockholder's equity
Ratio of Liabilities to Stockholders' Equity = $400/$26,050 = 0.015
The rights of creditors to a business's assets come before the rights of the owners or stockholders. Thus, the lower the ratio of liabilities to stockholders' equity, the better able the company is to withstand poor business conditions to pay its obligations to creditors.
Hello, I'm Terra the Founder and Marketing Director of Fontenot & Associates Solutions. Thank you for joining my Accounting world. Our blog's purpose is to teach with the determination of closing industry and accounting process gaps that knowingly exist with our uniquely designed detailed procedures and trainings.
My mission is to offer the best accounting results for all companies seeking to close their process gaps with actual solutions. With my Bachelors and Masters Degree in Accounting, I strive for continuous development and professional growth in this profession. My professional career has been in the Oil & Gas industry for nearly the past 10 years but my business focus is to support and train accounting professionals in all industries.