Question 1 Crane Medical manufactures hospital beds and other institutional furn

Question

Question 1

Crane Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.

a) Calculate the following leverage ratios for 2016. (Round all answers to 2 decimal places, e.g. 2.55% or 2.55.)

Crane Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets   Cash $396,000 $417,500   Accounts receivable, net 1,005,000 776,450   Inventory 734,000 681,050   Other current assets 352,000 247,100 Total current assets 2,487,000 2,122,100 Property, plant, & equipment, net 8,846,485 8,439,875   Total assets $11,333,485 $10,561,975 Liabilities and Stockholders’ Equity Current liabilities $3,142,000 $2,846,100 Long-term debt 3,793,000 3,892,650   Total liabilities 6,935,000 6,738,750 Preferred stock, $5 par value 50,000 59,000 Common stock, $0.25 par value 155,000 103,800 Retained earnings 4,193,485 3,660,425   Total stockholders’ equity 4,398,485 3,823,225   Total liabilities and stockholders’ equity $11,333,485 $10,561,975

Explanation / Answer

a. Debt ratio = Total Liabilities / Total Assets
= $6,935,000 / $11,333,485
= 61.19%

b. Debt-to-equity ratio = Debt / Equity
= $3,793,000 / $4,398,485
= 86.23%

c. Times interest earned ratio = Net operating income / Interest expenses
= $1,724,600 / $301,800
= 5.71 times

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