Exercise 13-10 Analyzing risk and capital structure LO P3

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[The following information applies to the questions displayed below.] Simon Companys year-end balance sheets follow.

At December 31	Current Yr			1 Yr Ago			2 Yrs Ago
Assets
Cash	$	31,800		$	35,625		$	37,800
Accounts receivable, net		89,500			62,500			50,200
Merchandise inventory		112,500			82,500			54,000
Prepaid expenses		10,700			9,375			5,000
Plant assets, net		278,500			255,000			230,500
Total assets	$	523,000		$	445,000		$	377,500
Liabilities and Equity
Accounts payable	$	129,900		$	75,250		$	51,250
Long-term notes payable		98,500			101,500			83,500
Common stock, $10 par value		163,500			163,500			163,500
Retained earnings		131,100			104,750			79,250
Total liabilities and equity	$	523,000		$	445,000		$	377,500

The companys income statements for the current year and one year ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	673,500					$	532,000
Cost of goods sold	$	411,225					$	345,500
Other operating expenses		209,550						134,980
Interest expense		12,100						13,300
Income tax expense		9,525						8,845
Total costs and expenses					642,400						502,625
Net income				$	31,100					$	29,375
Earnings per share				$	1.90					$	1.80

For both the current year and one year ago, compute the following ratios:

(1) Debt and equity ratios.

Debt Ratio
	Choose Numerator:	/	Choose Denominator:	=	Debt Ratio
	Total liabilities	/	Total assets	=	Debt ratio
Current Year:		/	$523,000	=		%
1 Year Ago:		/	$445,000	=		%
Equity Ratio
	Choose Numerator:	/	Choose Denominator:	=	Equity Ratio
		/		=	Equity ratio
Current Year:		/		=	0	%
1 Year Ago:

(2) Debt-to-equity ratio

Debt-To-Equity Ratio
	Choose Numerator:	/	Choose Denominator:	=	Debt-To-Equity Ratio
		/		=	Debt-to-equity ratio
Current Year:		/		=	0	to 1
1 Year Ago:

(3-a) Times interest earned.

Times Interest Earned
	Choose Numerator:	/	Choose Denominator:	=	Times Interest Earned
		/		=	Times interest earned
Current Year:		/		=	0	times
1 Year Ago:		/		=	0	times

(3-b) Based on times interest earned, is the company more or less risky for creditors in the Current Year versus 1 Year Ago?

Based on times interest earned, the company is

less risky

for creditors in the current year versus one year ago.