What is Blue Skys debt ratio how does it compare with the debt ratios for Sunnyvale and BestCare

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Overview In the Module Two milestone, you selected a product and developed a persona that reflects your target market. Your work on this milestone must be based on the same product selection. Review the feedback from your instructor on your persona and make any needed improvements before completing this assignment. Your work on this milestone must be based on that corrected persona. In this milestone, you will consider promotion, specifically marketing communication channels, and price. You will receive instructor feedback on this milestone, revise your work, and add it to your project submission. Prompt Complete the Module Four Milestone Worksheet in your Soomo webtext and submit it for instructor feedback. To navigate to the worksheet, click the Contents button on the upper right, then select the Milestone: Module Four Milestone tab from the Chapter Four drop-down menu. Use the persona from your Module Two Milestone, with revisions based on instructor feedback, as the basis for this milestone. Specifically, you must address the following rubric criteria: Promotion Recommend two marketing communication channels for your chosen product. Briefly describe each and explain why they are appropriate based on your persona. Price Explain how one of the following is used to determine the approach to pricing for any offering. Company profitability Competitor pricing Target market price sensitivity Identify which one of the four basic pricing strategies (skimming, premium, economy, or penetration) you feel is most appropriate for your chosen product and persona, and describe the general advantages and drawbacks of that pricing strategy. Guidelines for Submission Module Four Milestone Rubric CriteriaProficient (100%)Needs Improvement (85%)Not Evident (0%)ValuePromotion: Marketing Communication ChannelsAccurately describes two marketing communication channels and provides a logical explanation of why they are appropriate, given the personaShows progress toward proficiency, but with errors or omissions; areas for improvement may include providing a more accurate description of the marketing communication channels or a more cogent explanation of why the channels are appropriate for the personaDoes not attempt criterion45Price: Approach to PricingClearly explains one of the factors used to determine product pricingShows progress toward proficiency, but with errors or omissions; areas for improvement may include providing a more complete explanation of the factor’s influence on priceDoes not attempt criterion20Price: Pricing StrategySelects a pricing strategy that is appropriate for the chosen product and persona and accurately describes its advantages and drawbacksShows progress toward proficiency, but with errors or omissions; areas for improvement may include providing a more accurate or thorough explanation of the pricing strategy, including its advantages and drawbacks, or a more cogent explanation of why the pricing strategy is appropriate given the personaDoes not attempt criterion25Articulation of ResponseClearly conveys meaning with correct grammar, sentence structure, and spelling, demonstrating an understanding of audience and purposeShows progress toward proficiency, but with errors in grammar, sentence structure, and spelling, negatively impacting readabilitySubmission has critical errors in grammar, sentence structure, and spelling, preventing understanding of ideas5Citations and AttributionsUses citations for ideas requiring attribution, with consistent minor errorsUses citations for ideas requiring attribution, with major errorsDoes not use citations for ideas requiring attribution5Total: 100%

The term debt ratio refers to a financial ratio that measures the extent of a company’s leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt. A ratio greater than 1 shows that a considerable amount of a company's assets are funded by debt, which means the company has more liabilities than assets. A high ratio indicates that a company may be at risk of default on its loans if interest rates suddenly rise. A ratio below 1 means that a greater portion of a company's assets is funded by equity.

• A debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.
• This ratio varies widely across industries, such that capital-intensive businesses tend to have much higher debt ratios than others.
• A company's debt ratio can be calculated by dividing total debt by total assets.
• A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.
• Some sources consider the debt ratio to be total liabilities divided by total assets.

As noted above, a company's debt ratio is a measure of the extent of its financial leverage. This ratio varies widely across industries. Capital-intensive businesses, such as utilities and pipelines tend to have much higher debt ratios than others like the technology sector.

The formula for calculating a company's debt ratio is:

Debt ratio = Total debt Total assets \begin{aligned} &\text{Debt ratio} = \frac{\text{Total debt}}{\text{Total assets}} \end{aligned} ​Debt ratio=Total assetsTotal debt​​

So if a company has total assets of $100 million and total debt of $30 million, its debt ratio is 0.3 or 30%. Is this company in a better financial situation than one with a debt ratio of 40%? The answer depends on the industry.

A debt ratio of 30% may be too high for an industry with volatile cash flows, in which most businesses take on little debt. A company with a high debt ratio relative to its peers would probably find it expensive to borrow and could find itself in a crunch if circumstances change. Conversely, a debt level of 40% may be easily manageable for a company in a sector such as utilities, where cash flows are stable and higher debt ratios are the norm.

A debt ratio greater than 1.0 (100%) tells you that a company has more debt than assets. Meanwhile, a debt ratio of less than 100% indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's risk level.

The fracking​ industry experienced tough times beginning in the summer of 2014 due to high levels of debt and plummeting energy prices.

Some sources consider the debt ratio to be total liabilities divided by total assets. This reflects a certain ambiguity between the terms debt and liabilities that depends on the circumstance. The debt-to-equity ratio, for example, is closely related to and more common than the debt ratio, instead, using total liabilities as the numerator.

Financial data providers calculate it using only long-term and short-term debt (including current portions of long-term debt), excluding liabilities such as accounts payable, negative goodwill, and others.

In the consumer lending and mortgages business, two common debt ratios used to assess a borrower’s ability to repay a loan or mortgage are the gross debt service ratio and the total debt service ratio.

The gross debt ratio is defined as the ratio of monthly housing costs (including mortgage payments, home insurance, and property costs) to monthly income, while the total debt service ratio is the ratio of monthly housing costs plus other debt such as car payments and credit card borrowings to monthly income. Acceptable levels of the total debt service ratio range from the mid-30s to the low-40s in percentage terms.

The higher the debt ratio, the more leveraged a company is, implying greater financial risk. At the same time, leverage is an important tool that companies use to grow, and many businesses find sustainable uses for debt. 

While the total debt to total assets ratio includes all debts, the long-term debt to assets ratio only takes into account long-term debts. The debt ratio (total debt to assets) measure takes into account both long-term debts, such as mortgages and securities, and current or short-term debts such as rent, utilities, and loans maturing in less than 12 months.

Both ratios, however, encompass all of a business's assets, including tangible assets such as equipment and inventory and intangible assets such as accounts receivables. Because the total debt to assets ratio includes more of a company's liabilities, this number is almost always higher than a company's long-term debt to assets ratio. 

Let's look at a few examples from different industries to contextualize the debt ratio.

Starbucks (SBUX) listed $0 in short-term and current portion of long-term debt on its balance sheet for the fiscal year ended Oct. 1, 2017, and $3.93 billion in long-term debt. The company's total assets were $14.37 billion. This gives us a debt ratio of $3.93 billion ÷ $14.37 billion = 0.2734, or 27.34%.

To assess whether this is high, we should consider the capital expenditures that go into opening a Starbucks, including leasing commercial space, renovating it to fit a certain layout, and purchasing expensive specialty equipment, much of which is used infrequently. The company must also hire and train employees in an industry with exceptionally high employee turnover, adhere to food safety regulations for its more than 27,000 locations in 75 countries in 2017.

Perhaps 27% isn't so bad after all when you consider that the industry average was about 65% in 2017. The result is that Starbucks has an easy time borrowing money—creditors trust that it is in a solid financial position and can be expected to pay them back in full.

What about a technology company? For the fiscal year ended Dec. 31, 2016, Meta (META), formerly Facebook, reported:

• Short-term and current portion of long-term debt as $280 million
• Long-term debt as $5.77 billion
• Total assets as $64.96 billion

Using these figures, Meta's debt ratio can be calculated as ($280 million + $5.7 billion) ÷ $64.96 billion = 0.092, or 9.2%. The company does not borrow from the corporate bond market. It has an easy enough time raising capital through stock.

Now let's look at a basic materials company. For the fiscal year ended Dec. 31, 2016, St. Louis-based miner Arch Coal (ARCH) posted short-term and current portions of long-term debt of $11 million, long-term debt of $351.84 million, and total assets of $2.14 billion.

Coal mining is extremely capital-intensive, so the industry is forgiving of leverage: The average debt ratio was 61% in 2016. Even in this cohort, Arch Coal's debt ratio of ($11 million + $351.84 million) ÷ $2.14 billion = 16.95% is well below average.

All debt ratios analyze a company's relative debt position. Common debt ratios include debt-to-equity, debt-to-assets, long-term debt-to-assets, and leverage and gearing ratios.

What counts as a good debt ratio will depend on the nature of the business and its industry. Generally speaking, a debt-to-equity or debt-to-assets ratio below 1.0 would be seen as relatively safe, whereas ratios of 2.0 or higher would be considered risky. Some industries, such as banking, are known for having much higher debt-to-equity ratios than others.

A debt-to-equity ratio of 1.5 would indicate that the company in question has $1.50 of debt for every $1 of equity. To illustrate, suppose the company had assets of $2 million and liabilities of $1.2 million. Since equity is equal to assets minus liabilities, the company’s equity would be $800,000. Its debt-to-equity ratio would therefore be $1.2 million divided by $800,000, or 1.5.

If a company has a negative debt ratio, this would mean that the company has negative shareholder equity. In other words, the company's liabilities outnumber its assets. In most cases, this is considered a very risky sign, indicating that the company may be at risk of bankruptcy.