In: Accounting
Selected financial data for Surf City and Paradise Falls are as
follows:
($ in millions) | Surf City | Paradise Falls | ||||||
2018 | 2017 | 2018 | 2017 | |||||
Total assets | $ | 16,133 | $ | 14,922 | $ | 33,296 | $ | 34,121 |
Total liabilities | 9,720 | 8,195 | 13,938 | 14,188 | ||||
Total stockholders’ equity | 6,413 | 6,727 | 19,358 | 19,933 | ||||
Sales revenue | $ | 6,503 | $ | 14,616 | ||||
Interest expense | 318 | 408 | ||||||
Tax expense | 44 | |||||||
Net income | 568 | 2,324 | ||||||
1-a. Calculate the debt to equity ratio for Surf City and Paradise Falls for the most recent year. (Do not round intermediate calculations. Round ratios answers to 2 decimal places. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5))
2-a. Calculate the return on assets for Surf City and Paradise Falls. (Round your answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5))
3-a. Calculate the times interest earned ratio for Surf City and Paradise Falls. (Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5))
Debt Equity ratio = Total Debt / Equity
Surf City = 9720 / 6413 = 1.52
Paradise Falls = 13938 / 19358 = 0.72
2-a. Calculate the return on assets for Surf City and Paradise Falls.
Firstly calculate the average total assets = [ Assets (2018) + Assets (2017) ] / 2
Surf City = [ 16133 + 14,922 ] / 2 = 15527.5
Paradise Falls = [33296 + 34121] /2 = 33708.5
Return on Assets = Net Income / Average Assets * 100
Surf City = 568 / 15527.5 * 100 = 3.66 %
Paradise Falls = 2324 / 33708.5 * 100 = 6.89%
3-a. Calculate the times interest earned ratio for Surf City and Paradise Falls.
First we need to compute EBIT = earnings before interst and tax. For this add the interest and tax back to the net income given in the question. i.e EBIT = Net Income + Tax + Interest
Surf city = 568 + 0 + 318 = 886
Paradise city = 2324 + 44 + 408 = 2776
Times Interest Earned ratio = EBIT / Interest
Surf city = 886 / 318 = 2.77
Paradise city = 2776 / 408 = 6.80