Ratios Analyzing Long-Term Firm Solvency The following information is available
ID: 2394301 • Letter: R
Question
Ratios Analyzing Long-Term Firm Solvency The following information is available for Antler Company: Annual Data 2013 2012 Interest expense Income tax expense Net income Capital expenditures $118,000 $112,000 233,500 215,000 526,500 425,000 320,000 400,000 Cash provided by operating activities 425,000 390,000 Year-End Data Dec. 31, 2013 Dec. 31, 2012 $2,230,000 $1,930,000 4,000,000 3,600,000 Total liabilities Total stockholders' equity Calculate the following: (Round to two decimal points.) a. 2013 debt-to-equity ratio b. 2013 times-interest-earned ratio c.2013 operating-cash-flow-to-capital-expenditures ratio CheckExplanation / Answer
Answer a.
Debt-to-equity Ratio = Total Liabilities / Total Stockholders’ Equity
Debt-to-equity Ratio = $2,230,000 / $4,000,000
Debt-to-equity Ratio = 0.56
Answer b.
Earnings before interest and tax = Net Income + Interest Expense + Income Tax Expense
Earnings before interest and tax = $526,500 + $118,000 + $233,500
Earnings before interest and tax = $878,000
Times Interest Earned Ratio = Earnings before interest and tax / Interest Expense
Times Interest Earned Ratio = $878,000 / $118,000
Times Interest Earned Ratio = 7.44 times
Answer c.
Operating Cash Flow to Capital Expenditures Ratio = Cash Provided by Operating Activities / Capital Expenditures
Operating Cash Flow to Capital Expenditures Ratio = $425,000 / $320,000
Operating Cash Flow to Capital Expenditures Ratio = 1.33
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