The Global Business Simulation Strategy Game – Glo – Bus Quiz Answers

If you’re in a business strategy class, you may be taking the Global Business Simulation Strategy Game, or “Glo-Bus” for short. You will most likely take two quizzes in this course, Glo-Bus Quiz 1 and Glo-Bus Quiz 2. Both quizzes will go over the basics of the game, and especially Quiz 2 may have very difficult questions. Many of the questions have a financial basis. Here is an example question that you will most likely get.

Given the following data from the Financial Statements:

Income statement data Quarter 1

(in 000s)
Sales revenue $50,000
Operating Income $14,400
Net Income $9,555

balance data
Total Current Assets $70,000
Total assets $149,000
Total current liabilities $26,000
Long-term debt (line of credit withdrawal) $33,000
Total Equity $90,000

Other financial data
Depreciation $4,000
Dividend payments $2,250

Based on the figures above, the company’s capital structure consists of what percentages of debt and equity? (These percentages are one of the components used to determine a company’s credit rating, as explained on the GSR Comparative Financial Performance page Help screen.)

Here are the 5 answers.

20% debt and 80% capital or 20:80.
27% debt and 73% equity or 27:73.
35% debt and 65% equity or 35:65.
37% debt and 63% equity or 37:63.
None of those.

So to answer this question, we need to look at this income statement and conclude what is debt and equity.

Total Equity is shown at $90,000, so that’s easy.

But the really hard part is figuring out what debt is. Believe it or not, but current liabilities are not part of “debt.” And that’s a mistake people make.

So the debt is simply a long-term debt of $33,000. But then what?

To calculate the correct ratio, the formula for debt ratio = debt / (debt + equity)

[And for note the equity ratio=equity/(debt+equity)]

Or therefore 33,000/(33,000+90,000)=.268 or what is equal to 27%. Therefore, the debt ratio is 27% and the balance of 73% is capital.

The correct answer is the second!