Question

Hasbro (HAS) and Mattel, Inc. (MAT), are the two largest toy companies in North America. Liability and stockholders’ equity data from recent balance sheets are shown for each company below (in millions):

		Hasbro		Mattel
Current liabilities		$ 1,065		$ 1,646
Long-term debt		1,952		2,274
Total liabilities		$ 3,017		$ 3,920
Total stockholders' equity		1,704		2,633
Total liabilities and stockholders' equity		$ 4,721		$ 6,553

The income from operations and interest expense from the income statement for both companies were as follows (in millions):

	Hasbro		Mattel
Income from operations before tax	$604		$464
Interest expense	97		85

a. Determine the debt ratio for both companies. Round to one decimal place.

Hasbro __________	%
Mattel, Inc. __________	%

b. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.

Hasbro __________
Mattel, Inc. __________

c. Determine the times interest earned for both companies. Round to one decimal place.

Hasbro _________
Mattel, Inc. _________

c. What conclusions can be drawn from these data as to the ability of these two companies to meet their interest obligations?
1. Earnings appear more than enough for both companies to make their required interest payments.

2. Earnings appear to insufficient for Hasbro to make its required interest payments.

3. Earnings appear to insufficient for Mattel to make its required interest payments.

4. Earnings for both companies are insufficient for them to make their required interest payments.

Answer 1

			Hasbro		Mattel
a.	Debt Ratio :-
a.	Total liabilities		$                           3,017		$          3,920
b.	Total assets		$                           4,721		$          6,553
	Ratio (a/b)		63.9%		59.8%
b.	Ratio of liabilities to stockholders' equity:-
a.	Total liabilities		$                           3,017		$          3,920
b.	Stockholders' equity		$                           1,704		$          2,633
	Ratio (a/b)		1.8	times	1.5	times
c	Times interest earned:-
a.	Income from operations before tax		$                              604		$             464
b.	Interest Expense		$                                97		$               85
	Ratio (a/b)		6.2	times	5.5	times
c.	What conclusions can be drawn from these data as to the ability of these two companies to meet their interest obligations?
Ans.	1. Earnings appear more than enough for both companies to make their required interest payments.
	Because the Times interest earned ratio is very good for both companies.

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