Blue Sky Drone Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $2.50 million on which it pays a 7% interest rate. To analyze a company’s financial leverage situation, you need to measure the firm’s debt management ratios. Based on the preceding information, what are the values for Blue Sky Drone’s debt management ratios?

The values for Blue Sky Drone’s debt management ratio is 0.35

Explanation:

In order to calculate the values for Blue Sky Drone’s debt management ratios we would have to make the following calculation:

debt management ratio=Total Debt / Total Assets

According to the given we have that it reported total debt of $2.50 million.

To calculate the total assets we would have to use the following formula:

Total Asset Turnover Ratio = Net Sales / Total Assets

3.50=$25,000,000/Total Assets

Total Assets=$25,000,000/3.50

Total Assets=$7,142,857

Therefore, debt management ratio=$2,500,000/$7,142,857

debt management ratio=0.35

The values for Blue Sky Drone’s debt management ratio is 0.35

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