Billy Covington is a loan analyst for DotBanc. DotBanc accepts online business l

Question

Billy Covington is a loan analyst for DotBanc. DotBanc accepts online business loan applications. The data are stored in a spreadsheet ("data set"). Billy imports this data into an analysis spreadsheet and calculates the debt to total assets ratio, debt to stockholders' equity ratio, and times interest earned ratio. The calculated ratios are used to screen applicants for further evaluation. To qualify, a company must have a debt to total assets ratio of less than 0.5, debt to total equity of less than 1.0, and a times interest earned ratio of at least 5.
In calculating the ratios, DotBanc makes certain assumptions as follows:
   Total equity is the sum of paid-in capital and retained earnings.
   Total assets equal total equity plus total liabilities.
   Total interest cost is 7% of total liabilities.
Use the accompanying data set to calculate the indicated ratios. Identify companies that meet the preliminary screening.

DATA SET
Applicant Total Liabilities Paid-in Capital Retained Earnings Net Income for Past Year Taxes for Past Year
Berkley          5,000,000          2,000,000          2,000,000          1,000,000             250,000
Costnor          2,500,000          1,000,000             500,000             400,000             100,000
Dalia          3,000,000             400,000          5,200,000             500,000             110,000
Fergusen             500,000             700,000          3,500,000             800,000              90,000
Hernandez          2,000,000             200,000             700,000             600,000              75,000
Indio          1,600,000          1,200,000          8,000,000             250,000              50,000
Jordanson          4,400,000          5,000,000            (400,000)             (60,000)                       -
Kervin          3,000,000          1,500,000          1,800,000              10,000                1,000
Lensmire             600,000             500,000             500,000             250,000              60,000

CALCULATIONS:
Debt to
Total Assets Debt
to Equity Times Interest Earned
Berkley
Costnor
Dalia
Fergusen
Hernandez
Indio
Jordanson
Kervin
Lensmire

Explanation / Answer

Income before interest expenses is calculated by adding interst expense to net income already given.

Only Fergusen and Lensmire meet the given criteria to qualify.

Debt to Total Assets Debt to equity Times interest earned Total liabilities / Total Assets Debt / Stockholder's equity Income before interest expense / Interest expense Berkley 5,000,000 / 9,000,000 = 0.55:1 5,000,000 / 4,000,000 = 1.25:1 1,350,000 / 350,000 = 3.85 times Costnor 2,500,000 / 4,000,000 = 0.625:1 2,500,000 / 1,500,000 = 1.67:1 575,000 / 175,000 = 3.28 times Dalia 3,000,000 / 8,600,000 = 0.34:1 3,000,000 / 5,600,000 = 0.53:1 710,000 / 210,000 = 3.38 times Fergusen 500,000 / 4,700,000 = 0.10:1 500,000 / 4,200,000 = 0.11:1 835,000 / 35,000 = 23.85 times Hernandez 2,000,000 / 2,900,000 = 0.68:1 2,000,000 / 900,000 = 2.2:1 740,000 / 140,000 = 5.28 times Indio 1,600,000 / 10,800,000 = 0.14:1 1,600,000 / 9,200,000 = 0.17:1 362,000 / 112,000 = 3.23 times Jordanson 4,400,000 / 9,000,000 = 0.48:1 4,400,000 / 4,600,000 = 0.95:1 Cannot be calculated as net income is negative Kervin 3,000,000 / 6,300,000 = 0.47:1 3,000,000 / 3,300,000 = 0.90:1 220,000 / 210,000 = 1.04 times Lensmire 600,000 / 1,600,000 = 0.375:1 600,000 / 1,000,000 = 0.60:1 292,000 / 42,000 = 6.95 times

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.