If total liabilities are 600 and total assets are 1200, what is the debt ratio?

• A. 0.25
• B. 0.5
• C. 0.75
• D. 1.0

Answer: (B)

The debt ratio shows what portion of assets is financed with debt, calculated as liabilities divided by assets. With liabilities of 600 and assets of 1200, the ratio is 600 / 1200 = 0.5, meaning 50% of the assets are financed by debt and the other 50% by equity or other sources. If the ratio were 0.25, liabilities would be 300; if 0.75, liabilities would be 900; if 1.0, liabilities would equal assets (1200). The actual value sits at 0.5, reflecting a balanced leverage level.