The balance sheet for Shaver Corporation reported the following: cash, $6,500; s

Question

The balance sheet for Shaver Corporation reported the following: cash, $6,500; short-term investments, $11,500; net accounts receivable, $38,000; inventory, $43,000; prepaids, $11,500; equipment, $112,000; current liabilities, $43,000; notes payable (long-term), $73,000; total stockholders’ equity, $120,000; net income, $3,620; interest expense, $5,000; income before income taxes, $6,180.

Compute Shaver’s debt-to-assets ratio and times interest earned ratio. (Round your answers to 2 decimal places.)

Ratio

Debt-to Asset _________

Times Interest Earned Ratio _______

Is it probable that Shaver will be able to meet its future interest obligations?

Compute Shaver’s debt-to-assets ratio and times interest earned ratio. (Round your answers to 2 decimal places.)

Ratio

Debt-to Asset _________

Times Interest Earned Ratio _______

Explanation / Answer

Based on these ratios, does it appear Shaver relies mainly on debt or equity to finance its assets?Based on these ratios, does it appear Shaver relies mainly on debt or equity to finance its assets?

Debt to asset ratio =52% ie 52% of company asset is financed through debt

hence we can say  Shaver relies mainly on debt

Is it probable that Shaver will be able to meet its future interest obligations?

Yes as the time inTimes Interest Earned Ratio is more than 2 it is probable that  Shaver will be able to meet its future interest

Cash 6500 Investment 11500 Nat Account Receivable 38000 Inventory 43000 Prepaid 11500 Equipment 112000 Total Asset 222500

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