Questions: Company, Expenses, Total Assets, Net Income, Total Liabilities DreamWorks, 22,000, 40,000, 19,000, 30,000 Pixar, 67,000, 150,000, 27,000, 147,000 Universal, 12,000, 68,000, 5,000, 17,000 a. Compute the debt ratio for each of the three companies. Note: Round your answers to 2 decimal places. Company, Debt Ratio DreamWorks, Pixar, Universal, b. Which company has the most risk from financial leverage?

To compute the debt ratio for each company, we use the formula:

\[ \text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}} \]

This ratio indicates the proportion of a company's assets that are financed by debt, and a higher ratio suggests greater financial leverage and risk.

Let's calculate the debt ratio for each company:

a. Debt Ratio Calculations:

1. DreamWorks: \[ \text{Debt Ratio} = \frac{\$30,000}{\$40,000} = 0.75 \] Rounded to two decimal places, the debt ratio for DreamWorks is 0.75.

2. Pixar: \[ \text{Debt Ratio} = \frac{\$147,000}{\$150,000} = 0.98 \] Rounded to two decimal places, the debt ratio for Pixar is 0.98.

3. Universal: \[ \text{Debt Ratio} = \frac{\$17,000}{\$68,000} = 0.25 \] Rounded to two decimal places, the debt ratio for Universal is 0.25.

b. Which company has the most risk from financial leverage?

The company with the highest debt ratio is considered to have the most risk from financial leverage because it relies more heavily on debt to finance its assets. In this case, Pixar has the highest debt ratio of 0.98, indicating it has the most financial leverage risk among the three companies.