Hello all, Hope someone can enlighten me on the question below: On Example 6 (Volume 3 page 234 ), Why is the long term debt divided by the total asset instead of total liabilites for the calculation? Assets = Liabilities + Equity Is that why we have to divide everything by the TOTAL ASSETS when we are doing a comparison using the common size analysis? THanks!
Chicago_Bull Wrote: ------------------------------------------------------- > Hello all, > > Hope someone can enlighten me on the question > below: > > On Example 6 (Volume 3 page 234 ), > > Why is the long term debt divided by the total > asset instead of total liabilites for the > calculation? > > Assets = Liabilities + Equity > > Is that why we have to divide everything by the > TOTAL ASSETS when we are doing a comparison using > the common size analysis? > > THanks! not sure what you are asking, but here is a good formula to know A/E = 1 + debt to equity