Notes on similarities, differences, and patterns you see across all companies, your ideas on potential explanations for
Question:
Notes on similarities, differences, and patterns you see across all companies, your ideas on potential explanations for these, and your recommendation on the best company to invest in.
Compute and analyze the debt-to-assets ratio and times interest earned ratio.
- Suncor Energy Inc
Debt-to-assets = (Total Liabilities ÷ Total Assets) × 100
2019: (47,393,000,000 ÷ 89,435,000,000) × 100 = 53%
53% of Suncor’s assets are financed by debt.
Times Interest Earned = (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense
Income tax expense net of deferred income tax asset is -366,000,000
2019: (2,899,000,000 + 638,000,000 + (-366,000,000)) ÷ 638,000,000 = 4.97
Suncor could pay its current interest expense almost 5 times over with its current income before income taxes are taken.
- Amplify Energy Corp
| Particulars | 2019 | 2018 |
| Total debt | 4,43,332 | 4,20,285 |
| Total assets | 8,77,539 | 8,36,843 |
| Debt to total assets ratio | 50.52% | 50.22% |
| (Debt/ total assets) | ||
| EBITDA | 64,786 | 1,54,221 |
| Interest expenses | 16,855 | 21,913 |
| Times interest earned ratio | 3.84 | 7.04 |
| (EBITDA/ Interest earned) | ||
| Operating income | (11,971) | 81,523 |
| Add: Depreciation | 55,843 | 52,334 |
| Add: Impairment exp | 2,246 | |
| Add: Taxes | 18,668 | 20,364 |
| EBITDA | 64,786 | 1,54,221 |
- The debt to assets ratio is 50% approx. in both years which shows that the assets are financed from debt in equal proportion. The times interest earned ratio have been declined by almost 50% in current year but still the organization is having 3.84 times earnings to cover interest payments.
- Ultra Petroleum Corporation
Total Assets =$1,815,276 thousand
Total Debt = $2,660,090 thousand
Debt-to-Assets Ratio =1,815,276/2,660,090 = 0.68 or 68%
The debt-to-asset ratio helps determine how assets are financed. For Ultra Petroleum, 68% of the assets required from the company are sourced by liabilities, or debt.
Net Income, Interest Expense, and Income Tax expense Combined = 107,998+129,398+1050 = $238,446 thousand
Interest Expense = $129,398 thousand
Times Interest Earned Ratio = 238,446/129,398 = 1.8
The interest earned ratio determines that generates $1.80 of income for each dollar of interest expense. This ratio is quite low, meaning that Ultra Petroleum is at risk of defaulting their payment to interest expense in the future.
- Nabors Industries Ltd
Debt-to-Assets = (Total Liabilities ÷ Total Assets) × 100
2019: $4,285,101,000/$6,760,658,000 = 63.4
63% of Nabors is financed by debt.
Times Interest Earned Ratio = (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense = 2.3
Expert Answer:
Kindly check below the table for the comparison of the performance of different companies in debt to ... View the full answer
