Oriole Medical manufactures hospital beds and other institutional furniture. The

Question

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

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

Oriole Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets   Cash $437,000 $417,400   Accounts receivable, net 1,047,000 776,500   Inventory 730,000 681,000   Other current assets 373,000 247,100 Total current assets 2,587,000 2,122,000 Property, plant, & equipment, net 8,656,875 8,439,930   Total assets $11,243,875 $10,561,930 Liabilities and Stockholders’ Equity Current liabilities $3,132,000 $2,846,100 Long-term debt 3,727,000 3,892,650   Total liabilities 6,859,000 6,738,750 Preferred stock, $5 par value 67,000 58,900 Common stock, $0.25 par value 125,000 103,800 Retained earnings 4,192,875 3,660,480   Total stockholders’ equity 4,384,875 3,823,180   Total liabilities and stockholders’ equity $11,243,875 $10,561,930

Explanation / Answer

a Debt ratio =Total liabilities/Total assets = 6859000/11243875= 61.00% b Debt-to-equity ratio =Total liabilities/Total stockholders’ equity=6859000/4384875= 1.56 c Times interest earned ratio =Net operating income /Interest expense =1723350/301500= 5.72

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