Question

Below is information from Darren Company’s 2012 financial statements.

	As of Dec. 31, 2012	Dec. 31, 2011
Cash and short-term investments	$ 958,245	$ 745,800
Accounts Receivable (net)	125,850	135,400
Inventories	195,650	175,840
Prepaid Expenses and other current assets	45,300	30,860
Total Current Assets	$1,325,045	$1,087,900
Plant, Property and Equipment, net	1,478,320	1,358,700
Intangible Assets	125,600	120,400
Total Assets	$2,928,965	$2,567,000
Short-term borrowings	$   25,190	$   38,108
Current portion of long-term debt	45,000	40,000
Accounts payable	285,400	325,900
Accrued liabilities	916,722	705,891
Income taxes payable	125400	115600
Total Current Liabilities	$1,397,712	$1,225,499
Long-term Debt	450,000	430,000
Total Liabilities	$1,847,712	$1,655,499
Shareholders' Equity	$1,081,253	$911,501
Total Liabilities and Shareholders' Equity	$2,928,965	$2,567,000
Selected Income Statement Data - for the year ending December 31, 2012:
Net Sales	$3,210,645
Cost of Goods Sold	(2,310,210)
Operating Income	900,435
Net Income	324,850
Selected Statement of Cash Flow Data - for the year ending December 31, 2012:
Cash Flows from Operations	$584,750
Interest Expense	42,400
Income Tax Expense	114,200

Using this information, calculate the following ratios:

Answers

	2012	2011
Liabilities to Assets Ratio
Liabilities to Shareholders' Equity Ratio
LT Debt to LT Capital Ratio
LT Debt to Shareholders' Equity Ratio
Interest Coverage Ratio		N/A
Operating Cash Flow to Total Liabilities Ratio		N/A

Use two decimal places for % and one for ratios

Answer 1

Solution for the above questions are as follows;

1) calculation for liabilities to asset ratio;

for 2011,

  liabilities means current liabilities and long term liabilities = 1225499+430000 = 1655499

Assets means current assets and fixed assets = 1087900+1358700+120400 = 2567000

therefore, liabilities to asset ratio = TOTAL LIABILITIES/TOTAL ASSETS

= 1655499/2567000

= .6449 ie,= .6

for 2012,

total liabilities = 1397712+ 450000 = 1847712

total assets = 1325045 + 1478320 + 125600 = 2928965

therefore, liabilities to asset ratio = TOTAL LIABILITIES/TOTAL ASSETS

= 1847712/2928965

= .6308 ie,=.6

2) calculation for liabilities to shareholders equity ratio:

for 2011,

liabilities means current liabilities and longterm liabilities = 1225499 + 430000 = 1655499

shareholders equity means both equity and preferred stock = 911501

therefore liabilities to shareholders equity ratio = TOTAL LIABILITIES/SHAREHOLDERS EQUITY

= 1655499/911501

= 1.816 ie,= 1.8

for 2012,

total liabilities = 1397712 + 450000 = 1847712

shareholders equity = 1081253

liabilities to shareholders equity ratio = TOTAL LIABILITIES/SHAREHOLDERS EQUITY

= 1847712/1081253

= 1.708 ie,=1.7

3) calculation for longterm debt to longterm capital ratio;

for 2011,

longterm debt means longterm liabilities only = 430000

lonterm capital means longterm debt and total shareholders equity = 430000+911501 = 1341501

longterm debt to longterm capital = LONGTERM DEBT/LONGTERM DEBT + TOTAL SHAREHOLDERS EQUITY

= 430000/1341501

= .3205 ie,= .3

for 2012,

longterm debt = 450000

longterm capital = 450000+1081253 = 1531253

longterm debt to longterm capital = LONGTERM DEBT/LONGTERM DEBT + TOTAL SHAREHOLDERS EQUITY

= 450000/1531253

= .2938 ie,= .3

4) calculation for longterm debt to shareholders equity ratio;

for 2011,

long term debt means long term liabilities only = 430000

shareholders equity means equity and prefered stock = 911501

longterm debt to shareholders equity = LONGTERM DEBT/SHAREHOLDERS EQUITY

= 430000/911501

= .4717 ie,=.5

for 2012,

longterm debt = 450000

shareholders equity = 1081253

longterm debt to shareholders equity = LONGTERM DEBT/SHAREHOLDERS EQUITY

= 450000/1081253

= .4161 ie,= .4

5) calculation for interest coverage ratio;

for 2012 only,

EBIT means Earning Before Interest and Tax(ie,operating income) = 900435

interest expenses = 42400

therefore, interest coverage ratio = EBIT/INTEREST EXPENSES

= 900435/42400

= 21.23 ie = 21.2

6) calculation for operating cashflow to total liabilities ratio;

for 2012 only,

operating cashflow means cash flow from operations = 584750

total liabilities means current liabilities and longterm liabilities = 1397712 + 450000 = 1847712

therefore, operating cashflow to total liabilities ratio = CASHFLOW FROM OPERATIONS/TOTAL DEBT

= 584750/1847712

= .3164 ie, = .3