White Memorial Hospital has a debt-to-equity ratio of 0.67. What is the hospital's debt ratio?

• A. 30 percent
• B. 40 percent
• C. 50 percent
• D. 60 percent

Answer: (B)

Debt-to-equity tells us how the mix of financing is split between debt and equity, while debt ratio shows what share of assets is financed with debt. If the debt-to-equity ratio is 0.67, imagine debt equals 0.67 times equity. Let equity be E and debt be 0.67E. Then total assets funded = debt + equity = 0.67E + E = 1.67E. The debt ratio is debt divided by total assets, which is 0.67E / 1.67E = 0.67 / 1.67 ≈ 0.401, or about 40 percent. So the debt ratio is 40%.