The following information pertains to Austin, Inc. and Huston Company:

Required
a. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed). Identify the company with the greater financial risk.
b. Compute each company’s return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio. Identify the company that is managing its assets more effectively. Identify the company that is producing the higher return from the stockholders’ perspective. Explain how one company was able to produce a higher return on equity than the other.

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Account Title Austin Huston $ 40,000 300,000 $ 40,000 Current assets Total assets 300,000 Current liabilities 15,000 200,000 20,000 240,000 60,000 17,000 27,000 50,000 Total liabilities Stockholders' equity 100,000 14,000 Interest expense Income tax expense 28,000 52,000 Net income