values are in thousands.

a$.$ Calculate the debt ratio and the times interest earned ratio for each company. In what way are these companies similar in terms of their debt usage, and in what way are they very different?

b$.$ Calculate the ratio of interest expense to total liabilities for each company. Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for

these two firms? Suggest some reasons.

a$.$ The debt ratio for Estee Lauder is

$($Enter in decimal format and round to three decimal places.$)$

The debt ratio for e$.$l$.$f$.$ Beauty is

$($Enter in decimal format and round to three decimal places.$)$

The times interest earned ratio for Estee Lauder is

$($Round to three decimal places.$)$

The times interest earned ratio for e$.$l$.$f$.$ Beauty is

$($Round to three decimal places.$)$

In what way are these companies similar in terms of their debt usage, and in what way are they very different? $($Select the best answer below.$)$

A$.$ The two companies are similar in the proportion of total liabilities financed by the firm's creditors, as shown by their similar debt ratios of $0\mathrm{.}611$ and $0\mathrm{.}66.$ The difference is in each firm's

ability to make monthly dividend payments, as measured by the times interest earned ratio. The higher the number, the better able the firm is to fulfill its obligations. In this case, Estee

Lauder's times interest earned ratio of $22\mathrm{.}932$ indicates they are significantly more able to fulfill their dividend obligations than e$.$l$.$f$.$ Beauty, whose times interest earned ratio is $1\mathrm{.}596.$

B$.$ The two companies are similar in the proportion of total assets financed by the firm's creditors, as shown by their similar times interest earned ratios of $0\mathrm{.}611$ and $0\mathrm{.}66.$ The difference is in

each firm's ability to make contractual interest payments, as measured by the debt ratio. The higher the number, the better able the firm is to fulfill its interest obligations. In this case, Estee

Lauder's debt ratio of $22\mathrm{.}932$ indicates they are significantly more able to fulfill their interest obligations than e$.$l$.$f$.$ Beauty, whose debt ratio is $1\mathrm{.}596.$