Selected financial data for Bahama Bay and Caribbean Key are as follows: Selecte

Question

Selected financial data for Bahama Bay and Caribbean Key are as follows:

Selected financial data for Bahama Bay and Caribbean Key are as follows:

1-a. Calculate the debt to equity ratio for Bahama Bay and Caribbean Key for the most recent year. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)  

Debt to Equity Ratio

Bahama Bay =

Caribbean Key =

1-b. Which company has the higher ratio?

2-a. Calculate the return on assets for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)

Return on Assets Ratio

Bahama Bay=

Caribbean Key=

2-b. Which company appears more profitable?

3-a. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)

Return on Assets Ratio

Bahama Bay=

Caribbean Key=

2-b. Which company appears more profitable?

3-a. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)

Times Interest Earned Ratio

Bahama Bay=

Caribbean Key=

3-b. Which company is better able to meet interest payments as they become due?

Bahama Bay

Caribbean Key

($ in millions) Bahama Bay Caribbean Key 2018 2017 2018 2017   Total assets $ 9,883 $ 9,802 $ 9,083 $ 9,122   Total liabilities 8,172 7,636 7,613 7,603   Total stockholders’ equity 1,711 2,166 1,470 1,519   Sales revenue $ 5,997 $ 12,969   Interest expense 237 181   Tax expense 85 359   Net income 347 380

Selected financial data for Bahama Bay and Caribbean Key are as follows:

($ in millions) Bahama Bay Caribbean Key 2018 2017 2018 2017   Total assets $ 9,883 $ 9,802 $ 9,083 $ 9,122   Total liabilities 8,172 7,636 7,613 7,603   Total stockholders’ equity 1,711 2,166 1,470 1,519   Sales revenue $ 5,997 $ 12,969   Interest expense 237 181   Tax expense 85 359   Net income 347 380

1-a. Calculate the debt to equity ratio for Bahama Bay and Caribbean Key for the most recent year. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)  

Debt to Equity Ratio

Bahama Bay =

Caribbean Key =

1-b. Which company has the higher ratio?

Bahama Bay Caribbean Key

Explanation / Answer

Solutions:

1 a) Debt Equity Ratio =Debt/ Equity

Bahama Bay = 8172/ 1711 = 4.78              Hence Debt Equity Ratio = 4.78:1

Caribbean Key = 7613/ 1470= 5.18                    Hence Debt Equity Ratio = 5.18:1

1 b) Caribbean Key has the higher ratio (5.18)

2 a) Return on Assets Ratio = Net Income/Average Assets

Bahama Bay

Average Asset = (9883+9802)/2 = 9842.5

Net Income = 347

Return on Assets Ratio = 347/9842.5 = 0.03

Hence Return on Assets Ratio = 0.03:1

Caribbean Key

Average Asset = (9083+9122)/2 = 9102.50

Net Income = 380

Return on Assets Ratio = 380/9102.5 = 0.04

Hence Return on Assets Ratio = 0.04:1

2 b) Caribbean Key appears more profitable ( 0.04 )

3 a) Interest earned ratio = Net Income+ Tax+ Interest/Interest

Bahama Bay

Net Income+ Tax+ Interest = 347+85+237 = 669

Interest = 237

Interest earned ratio = 669/237 = 2.82 times

Ratio = 2.82 : 1

Caribbean Key

Net Income+ Tax+ Interest = 380+359+181 = 920

Interest = 181

Interest earned ratio = 920/181 = 5.08 times

Ratio = 5.08 : 1

3 b ) Carribbean Key is better able to meet interest payments as they become due.

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