Use the Information That Follows Taken from Carter Company's Financial

Essay

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016.
$\begin{array}{lrr}\text { Balance Sheet Information }&2017&2016\\\hline \text { Assets}\\\text { Cash } & \$ 70 & \$ 80 \\\text { Accounts receivable } & 40 & 40 \\\text { Inventory } & 40 & 60 \\\text { Land, building, and equipment } & \underline{290} & \underline{310} \\\text { Total Assets } & \$ \underline{440} & \$ \underline{490} \\\end{array}$

$\begin{array}{l}\text { Liabilities and Shareholders' Equity }\\\hline \text { Accounts payable } & \$ 95 & \$ 245 \\\text { Common stock } & 210 & 210 \\\text { Retained earnings } & 135& 35\\\text { Total Liabilities \& Shareholders' Equity }& \underline{\$440} &\underline{ \$490} \\\end{array}$

$\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$
The industry in which Carter is a member has an average debt/equity ratio of 0.83. Determine if, as measured by the debt/equity ratio on December 31, 2017, Carter is taking full advantage of investing borrowed capital in its operations relative to that of the average firm in its industry. Explain.