Find the following Ratios for Kelly & Chris CO 1. Times interest earned 2. Debt
ID: 2779144 • Letter: F
Question
Find the following Ratios for Kelly & Chris CO
1. Times interest earned
2. Debt ratio
3. Debt/equity ratio
4. Debt to tangible net worth
Is Chris Co in a position to take on additional long-term debt? why?
Which company has the better long-term debt position? why?
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BALANCE SHEET Kelly Chris Cash 10000 35000 Accounts receivable 45000 120000 Inventory 70000 190000 Investments 40000 100000 Intangibles 11000 20000 Property, plant, and equipment 180000 520000 ---Total assets ===356000 ===985000 Accounts payable 60000 165000 Bonds payable 100000 410000 Preferred stock $1 par 50000 30000 Common stock, $10 par 100000 280000 Retained earnings 46000 100000 ---Total Liabilities and Capital ===356000 ===985000 INCOME STATEMENT Kelly Chris Sales 1050000 2800000 Cost of goods sold -725000 -2050000 Selling and administrative expenses -230000 -580000 Interest expense -10000 -32000 Income taxes -42000 -65000 Net income ===43000 ===73000 Industry Averages: Times interest earned 7.2 times Debt ratio 40.30% Debt/equity 66.60% Debt to tangible net worth 72.70%Explanation / Answer
Ratios for K:
Times interest ratio:
It is computed using the following formulae:
Earnings before interest and taxes/Interest payments
= 95,000/ 10,000
=9.5 times
Debt ratio:
=Total debt/Total assets
=100,000/356,000
=0.2809
Debt to equity ratio:
=Total debt/Total equity
=100,000/196,000
=0.5102
Debt to tangible net worth ratio:
Total liabilities/Stockholder’s equity –intangible assets
=160,000/(196,000-11,000)
=160,000/185,000
=0.864
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