Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	28,075			$	31,842		$	32,206
Accounts receivable, net			79,758				57,430			42,941
Merchandise inventory			98,255				75,138			46,195
Prepaid expenses			9,131				8,273			3,687
Plant assets, net			255,915				233,467			203,571
Total assets		$	471,134			$	406,150		$	328,600
Liabilities and Equity
Accounts payable		$	114,966			$	67,953		$	44,243
Long-term notes payable secured by mortgages on plant assets			88,573				93,415			71,168
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			105,095				82,282			50,689
Total liabilities and equity		$	471,134			$	406,150		$	328,600

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	612,474					$	483,319
Cost of goods sold	$	373,609					$	314,157
Other operating expenses		189,867						122,280
Interest expense		10,412						11,116
Income tax expense		7,962						7,250
Total costs and expenses					581,850						454,803
Net income				$	30,624					$	28,516
Earnings per share				$	1.88					$	1.75

For both the Current Year and 1 Year Ago, compute the following ratios:

1 Debt and equity ratios.

2 Debt-to-equity ratio.

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

Answer 1