You are analyzing the bonds of ZETA Company as a potential long-term investment. As part of your decision-making process, you compute various ratios for Years 5 and 6. Additional data and information to be considered only for purposes of this problem follow ($ thousands):
1. Interest consists of the following:

2. Depreciation includes amortization of previously capitalized interest of $1,200 for Year 6 and $1,000 for Year 5.
3. Interest portion of operating rental expense considered a fixed charge: $20 in Year 6 and $16 in Year 5.
4. The associated company is less than 50% owned.
5. Deferred taxes constitute a long-term liability.
6. Present value of noncapitalized financing leases is $200 for both years.
7. Excess of the projected pension benefit obligation over the accumulated pension benefit obligation is $2,800 for both years.
8. End of Year 4 total assets and equity capital are $94,500 and $42,000, respectively.
9. Average market price per share of ZETA's common stock is $40 and $45 for Year 6 and Year 5, respectively.

a. Compute the following analytical measures for both Year 6 and Year 5:
(1) Total debt to total assets.
(2) Total debt to equity.
(3) Long-term debt to equity.
(4) Earnings to fixed charges.
(5) Cash flow to fixed charges.
b. Analyze and interpret both the level and year-to-year trend in thesemeasures.

  • CreatedJanuary 22, 2015
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