Question

The 2021 balance sheet for Hallbrook Industries, Inc., is shown below.

HALLBROOK INDUSTRIES, INC.
Balance Sheet
December 31, 2021
($ in thousands)
Assets
Cash	$	330
Short-term investments		280
Accounts receivable		330
Inventory		360
Property, plant, and equipment (net)		2,300
Total assets	$	3,600
Liabilities and Shareholders’ Equity
Current liabilities	$	530
Long-term liabilities		480
Paid-in capital		1,400
Retained earnings		1,190
Total liabilities and shareholders’ equity	$	3,600

The company’s 2021 income statement reported the following amounts ($ in thousands):

Net sales	$	5,900
Interest expense		50
Income tax expense		120
Net income		290

Required:
1. Calculate the current ratio. (Round your answer to 2 decimal places.)
2. Calculate the acid-test ratio. (Round your answer to 3 decimal places.)
3. Calculate the debt to equity ratio. (Round your answer to 2 decimal places.)
4. Calculate the times interest earned ratio. (Round your answer to 1 decimal place.)

Answer 1

Answer:-

1) Current Ratio = Current assets / Current liabilities = ($3,600 - $2,300)/$530 = $2.45
2) Acid test ratio = Quick assets / Current liabilities = ($3,600 -$2,300 -$360)/530 = $1.77
3) Debt to equity ratio = Total Liabilities / Stockholder's Equity = ($530+$480)/($1,400+$1190) = $0.39
4) Times interest earned = Ebit / Interest expense = ($290+$120+$50)/50 = $9.20