Grammatico Company has just completed its third year of operations. The income statement isas follows:

Sales......................................................$ 2,460,000

Less: Cost of goods sold...............................(1,410,000)

Gross profit margin....................................$ 1,050,000

Less: Selling and administrative expenses............(710,000)

Operating income.........................................$ 340,000

Less: Interest expense....................................(140,000)

Income before taxes.....................................$ 200,000

Less: Income taxes........................................(68,000)

Net income..............................................$ 132,000

Selected information from the balance sheet is as follows:

Current liabilities.....................................$1,000,000

Long-term liabilities...................................1,500,000

Total liabilities.........................................$2,500,000

Common stock.......................................$4,000,000

Retained earnings.........................................750,000

Total equity...........................................$4,750,000

Required:

1. Compute the times-interest-earned ratio.

2. Compute the debt ratio.

3. Assume that the lower quartile, median, and upperquartile values for debt and times-interest-earned ratios in Grammatico's industry areas follows:

Times-interest-earned:...................................2.4, 5.4, 16.1

Debt:.......................................................0.3, 0.8, 2.4

How does Grammatico compare with the industrial norms? Does it have too much debt?