Question

Liabilities

Using the Annual Report of your selected company, answer the following questions in the Discussion:

• What is the breakdown of the company's current liabilities at year end?

• Calculate the company's times-interest-earned ratio for the year-end. What does this tell you about the company?

• How much was the company's long-term debt at year end?

• Compute the company's debt to equity ratio at year-end. How does it compare to the industry? What does this tell you about the company?

Answer 1

1. What is the breakdown of the company's current liabilities at year end?

Notes payable - $500

Accounts Payable - $450

Current maturities of Long Term Debt - $600

Total Current Liabalities = $1550

2.Calculate the company's times-interest-earned ratio for the year-end. What does this tell you about the company?

Times-interest-earned ratio = (Net Income + Income Tax Expenses + Interest Income) /Interest Income

= ($450 + $150 + $100) /100

= 7:1

The times interest earned (TIE) ratio is a measure of a company's ability to meet its debt obligations based on its current income.

3. How much was the company's long-term debt at year end?

Bonds - $600

Individual Notes Payable- $400

Lease obligations - $300

Total Long Term Debt - $1300

4. Compute the company's debt to equity ratio at year-end. How does it compare to the industry? What does this tell you about the company?

Total Debt = Current Liablities + Long term Debt

= $1550 + $1300

= $2850

Total Share holders Equity = $1425

Debt/Equity Ratio =Total Liablities /Total Share holders Equity

= $2850/$1425

= 2:1

The ratio is used to evaluate a company's financial leverage. The D/E ratio is an important metric used in corporate finance. It is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds. More specifically, it reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.