The following is an excerpt from the Freight Train, Inc.’s 2019 annual report: In Millions 2019...

The following is an excerpt from the Freight Train, Inc.’s 2019 annual report:

In Millions	2019	2018
Debt	$60,744	$59,484
Equity	49,693	46,445

Required

Calculate the debt-to-equity ratio for Freight Train, Inc. for 2019 and 2018 based on year end values of debt and equity.

b. The present values of the operating leases totaled $6,192 and $6,448 in 2019 and 2018, respectively. Assume that the leases were capitalized (were included in the total amount of debt reported). Recalculate the debt-to-equity ratio for Freight Train, Inc. for 2019 and 2018 without including the operating leases. Does capitalizing the leases improve or worsen the company’s risk perception?

Expert Solution

a. Calculate the debt-to-equity ratio for Freight Train, Inc. for 2019 and 2018 based on year end values of debt and equity.

In Millions	2019	2018	*Remarks*
Debt	$60,744	$59,484	(a)
Equity	49,693	46,445	(b)
Debt-to-equity ratio	1.22	1.28	(c=a/b)

b. The present values of the operating leases totaled $6,192 and $6,448 in 2019 and 2018, respectively. Assume that the leases were capitalized (were included in the total amount of debt reported). Recalculate the debt-to-equity ratio for Freight Train, Inc. for 2019 and 2018 without including the operating leases. Does capitalizing the leases improve or worsen the company’s risk perception?

In Millions	2019	2018	*Remarks*
Debt	$60,744	$59,484
Less: Operating leases included in debt	-$6,192	-$6,448
Debt net of Operating leases	$54,552	$53,036	(a)

Equity	49,693	46,445	(b)
Debt-to-equity ratio	1.10	1.14	(c=a/b)

Debt-equity ratio represents the debt taken in comparison to net asset/shareholder's fund of the Company. Higher debt-equity ratio means the Company has higher debt against a dollar of net asset/shareholder's fund as compared to lower debt-equity ratio. Higher debt-equity ratio means higher risk. The debt-equity ratio without Operating leases in debt is lower than debt-equity ratio with Operating leases in debt. Accordingly capitalizing the leases worsen the company’s risk perception.

ekkarill92 answered 1 year ago

The following information (Sin millions) comes from a recent annual report of Amazon.com Inc.:

Problem 1: The following information (Sin millions) comes from a recent annual report of Amazon.com Inc.: Required a. Compute Amazon's balance in cash at the beginning of the year b. Compute Amazon's total liabilities at the end of the year c. Compute Amazon's cost of goods sold for the year d. Compute the income before income tax for Amazon e. Compare net income (loss) for the year to net cash flow from operating activities. Why are these amounts different? Briefly explain.

The following excerpt is from Coca-Cola Company’s 2014 annual report filed with the SEC: Management evaluates...

The following excerpt is from Coca-Cola Company’s 2014 annual report filed with the SEC: Management evaluates the performance of our operating segments separately to individually monitor the different factors affecting financial performance. Our Company manages income taxes and certain treasury-related items, such as interest income and expense, on a global basis within the Corporate operating segment. We evaluate segment performance based on income or loss before income taxes. Below are selected segment data for Coca-Cola Company for the 2014 and...

The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of...

The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Merry International Inc. for the 2021 fiscal year. The following additional information from an analysis of Merry's financial position is available: Current ratio = 1.352397; Acid-test ratio = 0.5771067; Debt to equity ratio = 1.6157180. Required: Compute the missing amounts in the balance sheet. (Enter your answers in millions of dollars. Round your intermediate and final answers to the nearest whole dollar.) MERRY INTERNATIONAL...

Following are account balances (in millions of dollars) from a recent FedEx annual report, followed by...

Following are account balances (in millions of dollars) from a recent FedEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31, 2014: Account Balance Account Balance Property and equipment (net) $ 15,543 Receivables $ 4,581 Retained earnings 12,716 Other current assets 610 Accounts payable 1,702 Cash 2,328 Prepaid expenses 329 Spare parts, supplies, and fuel 437 Accrued expenses payable 1,894 Other noncurrent liabilities 5,616 Long-term notes payable 1,667 Other current liabilities 1,286...

1. The following data were included in a recent Papaya Inc. annual report (in millions): 2013...

1. The following data were included in a recent Papaya Inc. annual report (in millions): 2013 2014 2015 2016 Net revenue $ 79,225 $ 131,559 $ 183,500 $ 191,920 Net property, plant, and equipment 4,930 9,080 15,590 16,200 Required: Compute Papaya's fixed asset turnover ratio for 2014, 2015, and 2016. (Do not round intermediate calculations. Round your answers to 1 decimal place.) During 2016, Mellow reported a fixed asset turnover ratio of 9.9. Was Papaya's turnover better or worse than...

The following statements are from Sanderson Farms Inc.’s annual report for 2017. Task 1: Perform a...

The following statements are from Sanderson Farms Inc.’s annual report for 2017. Task 1: Perform a ratio analysis using at least seven ratios of your choosing. Explain what these ratios tell you about the company and for each one provide at least ONE recommendation of an action that management could take to improve that ratio. Task 2: Create a cash flow statement for the company for 2017. Sanderson’s Farm Inc. and Subsidiaries CONSOLIDATED BALANCED SHEETS October 31, 2017 2016 Assets...

Ann Inc. reports the following in its 2019 annual report. $ thousands 2019 2018 2017 Gross...

Ann Inc. reports the following in its 2019 annual report. $ thousands 2019 2018 2017 Gross sales 53,647 52,546 52,824 Sales allowance at year end 241.41 189.16 105.65 Calculate the Sales allowance/Gross sales for the past three years and discuss any trend in this metric. What type of trends are indicated: favorable or unfavorable trend?

The following information is computed from Katy Inc.'s annual report for 2018. 2018 2017 Current assets...

The following information is computed from Katy Inc.'s annual report for 2018. 2018 2017 Current assets $ 2,731,020 $ 2,364,916 Property and equipment, net 10,960,286 8,516,833 Intangible assets, at cost less applicable amortization 294,775 255,919 $13,986,081 $11,137,668 Current liabilities $ 3,168,123 $ 2,210,735 Deferred federal income taxes 160,000 26,000 Mortgage note payable 456,000 - Stockholders' equity 10,201,958 8,900,933 $13,986,081 $11,137,668 Net sales $33,410,599 $25,804,285 Cost of goods sold (30,168,715) (23,159,745) Selling and administrative expense (2,000,000) (1,500,000) Interest expense (216,936) (39,456)...

The following information comes from the 2019 Annual Report of the Cola Company: Accounts Receivable at...

The following information comes from the 2019 Annual Report of the Cola Company: Accounts Receivable at 1/1/19 $ 3,141 Allowance for Uncollectible Acconts at 1/1/19 51 2019 Sales (assume all were on credit) 30,990 2018 Collections of cash from customers 30,289 Write off of Customer Accounts 22 2019 estimate of Uncollectible Accounts 26 Required: Prepare t-accounts showing how the above activity flows through the Cola Company's accounts. MAKE SURE TO SHOW THE ENDING BALANCE (Label "Balance"FOR EACH ACCOUNT) Then answer...

Arndt, Inc., reported the following for 2018 and 2019 ($ in millions): 2018 2019 Revenues $...

Arndt, Inc., reported the following for 2018 and 2019 ($ in millions): 2018 2019 Revenues $ 913 $ 988 Expenses 770 810 Pretax accounting income (income statement) $ 143 $ 178 Taxable income (tax return) $ 135 $ 200 Tax rate: 40% Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2018 for $60 million. The cost is tax deductible in 2018. Expenses include $2 million insurance premiums each year for life insurance on key...

Question