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David · Accepted Answer

Exercise 10-15   Home Depot Inc. 
b) Compute the company’s debt ratio. Does Home depot appear to have excessive 
debt? Explain. 
Debt ratio = Total liabilities/Total assets 
For the most recent year reported: Year ending January 31, 2010: 
Debt ratio = 21,484/40,877 
 52.56% (or) 53% rounded. 
Yes. The company definitely appears to have excessive debt.  The company has 
a debt content of 53% in the capital structure, leaving behind only 47% for 
equity component.  A company should not have more debt than its equity 
content in the capital structure.  Equity portion should always be higher for 
long-term solvency of the company.

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