calculate the following financial leverage management ratios: debt ratio debt to

Question

calculate the following financial leverage management ratios:
debt ratio
debt to equity ratio
times interest earned ratio
fixed-charge- coverage ratio

The following financial data for the Freemont Corporation are to be used in answering the self-test problems. Balance Sheet ($000) Assets Cash Marketable securities 2,500 Notes payable Accounts receivable 5,000 Total current liabilities Inventory Total current assets $52,000 Total liabilities Liabilities & Stockholders' Equity Accounts payable $ 1,500 $12,500 12,500 $25,000 33,000 Long-term debt Fixed assets (net) 35.000 Common stock (par value) 5,000 18,000 Total assets Contributed capital in excess of par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $87.000 $40,000 $87.000

Explanation / Answer

Calculation of debt ratio: Debt ratio= Total liabilities/ total assets                      =47000/87000= 0.54 Debt ratio is 0.54 Calculation of debt to equity ratio: Debt to equity ratio= Total liabilities/ total equity                                        =47000/40000= 1.175 Debt to equity ratio is 1.175 Calculation of time interest earned ratio: Time interest earned ratio= Earning before interest and tax/ interest                                                      = 11000/3000=3.67 Time interest earned ratio is 3.67 Calculation of Fixed charge coverage ratio: Fixed charge coverage ratio= (Earning before interest and tax+fixed charges before tax)/(Fixed charges before tax+interest) Fixed charges before tax means lease payment that is $200 Fixed charge coverage ratio=(11000+200)/(200+3000)= 11200/3200= 3.5 Fixed charge coverage ratio is 3.5

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