1. What are the firm's debt? 

2. What is the firms times interest earned? 

3. What is the firms fixed charge coverage? 

4. How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios?

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Balance Sheets Assets 2022 2021 Cash $ 52,000 $ 57,600 Accounts receivable 402,000 351,200 Inventories 836,000 715,200 Total current assets Gross fixed assets Less : Accumulated depreciation Net fixed assets Total assets $1,290,000 $1,124,000 527,000 491,000 166,200 146,200 $ 360,800 $ 344,800 $1,650,800 $1,468,800 Liabilities and Equity Accounts payable $ 175,200 $ 145,600 Notes payable 225,000 Accruals 140,000 200,000 136,000 Total current liabilities $ 540,200 $ 481,600 Total liabilities Long-term debt Common stock (100,000 shares) Retained earnings 424,612 323,432 $ 964,812 $ 805,032 460,000 225,988 460,000 203,768 Total equity $ 685,988 $ 663,768 Total liabilities and equity $1,650,800 $1,468,800 Income Statements 2022 2021 Sales $3,850,000 Cost of goods sold (3,250,000) $3,432,000 (2,864,000) Other expenses ( 430,300) ( 340,000) Depreciation ( 20,000) ( 18,900) Total operating costs ($3,700,300) ($3,222,900) Earnings before interest and taxes (EBIT) $ 149,700 $ 209,100 Interest expense ( 76,000) ( 62,500) Earnings before taxes (EBT) $ 73,700 $ 146,600 Taxes (40%) ( 29,480) ( 58,640) Net income $ 44,220 $ 87,960 Earning per share (EPS) $ 0.442 $ 0.880 Statement of Cash Flows (2022) Operating Activities Net income (NI) Additions to NI (sources of cash) Depreciation Increase in accounts payable $ 44,220 20,000 29,600 4,000 Increase in accruals Subtractions from NI (uses of cash) Increases in accounts receivable ( 50,800) Increase in inventories Net cash flow from operations Long-Term Investing Activities Investment in fixed assets (120,800) $(73,780) $(36,000) Financing Activities Increase in notes payable Increase in long-term debt $ 25,000 101,180 Payment of cash dividends ( 22,000) Net cash flow from financing Net change in cash Cash at beginning of the year Cash at end of the year $104,180 $ (5,600) 57,600 $ 52,000 Other Data 2022 December 31 stock price $ 6.00 2021 $ 8.50 Number of shares 100,000 100,000 Dividends per share $0.22 $0.22 Lease payments $40,000 $40,000 Industry average data for 2021: Ratio Current Quick Industry Average 2.7X 1.0X Inventory turnover Days sales outstanding (DSO) 6.0X 32.0 days Fixed assets turnover 10.7X Total assets turnover 2.6X Debt ratio 50.0% Time interest earned (TIE) 2.5X Fixed charge coverage 2.1X Net profit margin 3.5% Return on assets (ROA) 9.1% Return on equity (ROE) 18.2% Price/earnings 14.2X Market/book 1.4X Balance Sheets Assets 2022 2021 Cash $ 52,000 $ 57,600 Accounts receivable 402,000 351,200 Inventories 836,000 715,200 Total current assets Gross fixed assets Less : Accumulated depreciation Net fixed assets Total assets $1,290,000 $1,124,000 527,000 491,000 166,200 146,200 $ 360,800 $ 344,800 $1,650,800 $1,468,800 Liabilities and Equity Accounts payable $ 175,200 $ 145,600 Notes payable 225,000 Accruals 140,000 200,000 136,000 Total current liabilities $ 540,200 $ 481,600 Total liabilities Long-term debt Common stock (100,000 shares) Retained earnings 424,612 323,432 $ 964,812 $ 805,032 460,000 225,988 460,000 203,768 Total equity $ 685,988 $ 663,768 Total liabilities and equity $1,650,800 $1,468,800 Income Statements 2022 2021 Sales $3,850,000 Cost of goods sold (3,250,000) $3,432,000 (2,864,000) Other expenses ( 430,300) ( 340,000) Depreciation ( 20,000) ( 18,900) Total operating costs ($3,700,300) ($3,222,900) Earnings before interest and taxes (EBIT) $ 149,700 $ 209,100 Interest expense ( 76,000) ( 62,500) Earnings before taxes (EBT) $ 73,700 $ 146,600 Taxes (40%) ( 29,480) ( 58,640) Net income $ 44,220 $ 87,960 Earning per share (EPS) $ 0.442 $ 0.880 Statement of Cash Flows (2022) Operating Activities Net income (NI) Additions to NI (sources of cash) Depreciation Increase in accounts payable $ 44,220 20,000 29,600 4,000 Increase in accruals Subtractions from NI (uses of cash) Increases in accounts receivable ( 50,800) Increase in inventories Net cash flow from operations Long-Term Investing Activities Investment in fixed assets (120,800) $(73,780) $(36,000) Financing Activities Increase in notes payable Increase in long-term debt $ 25,000 101,180 Payment of cash dividends ( 22,000) Net cash flow from financing Net change in cash Cash at beginning of the year Cash at end of the year $104,180 $ (5,600) 57,600 $ 52,000 Other Data 2022 December 31 stock price $ 6.00 2021 $ 8.50 Number of shares 100,000 100,000 Dividends per share $0.22 $0.22 Lease payments $40,000 $40,000 Industry average data for 2021: Ratio Current Quick Industry Average 2.7X 1.0X Inventory turnover Days sales outstanding (DSO) 6.0X 32.0 days Fixed assets turnover 10.7X Total assets turnover 2.6X Debt ratio 50.0% Time interest earned (TIE) 2.5X Fixed charge coverage 2.1X Net profit margin 3.5% Return on assets (ROA) 9.1% Return on equity (ROE) 18.2% Price/earnings 14.2X Market/book 1.4X

Answer rating: 100% (QA)

1 Debt ratio calculation Total liabilities 964312 Total assets 1468800 Debt ratio Total liabilities ... View the full answer