Timmins Company has just completed its third year of operations. The income statement is as follows:

Sales ..................... $ 2,460,000

Less: Cost of goods sold .............. (1,410,000)

Gross profit .................... $ 1,050,000

Less: Selling and administrative expenses ........ (710,000)

Operating income ................. $ 340,000

Less: Interest expense ................ (140,000)

Income before taxes ................ $ 200,000

Less: Income taxes ................. (68,000)

Net income .................... $ 132,000

Selected information from the balance sheet is as follows:

Current liabilities ................. $1,000,000

Long-term liabilities ................. 1,500,000

Total liabilities .................. $2,500,000

Common stock .................. $4,000,000

Retained earnings ................... 750,000

Total equity .................... $4,750,000

Required:

Round answers to two decimal places.

1. Compute the times-interest-earned ratio.

2. Compute the debt ratio.

3. Assume that the lower quartile, median, and upper quartile values for debt and times-interest-earned ratios in Timmins’s industry are as follows:

Times-interest-earned: 2.3, 5.4, 16.1

Debt: 2.4, 0.8, 0.5

How does Timmins compare with the industrial norms? Does it have too much debt?