Atlanta Company Spokane Company

Total liabilities $ 429,000 $ 549,000

Total equity 572,000 1,830,000

Compute the debt-to-equity ratio for each of the above companies. Which company appears to have a riskier financing structure?

A) Spokane

B) Company

C) Atlanta

D) Company

C) Atlanta Company

Explanation:

Let's bear in mind that equity is an advantage that allows your company to buy and sell more.

So more equity means more ability to buy and sell and less the possibility of going bankrupt.

Liability on the other hand also gives advantage in trade r company, so more liability shows strongness of the company.

Now let's compare the equity and liability of the both companies

Atlanta Company

Total liabilities $ 429,000

Total equity 572,000

Spokane Company

Total liabilities $ 549,000

Total equity 1,830,000

The equity ratio is about 1:3

While liability is about 1:1.2

So Atlanta company has more riskier structure