In: Accounting
Selected financial data for Bahama Bay and Caribbean Key are as follows:
($ in millions) | Bahama Bay | Caribbean Key | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 9,883 | $ | 9,802 | $ | 9,083 | $ | 9,122 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 8,172 | 7,636 | 7,613 | 7,603 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders’ equity | 1,711 | 2,166 | 1,470 | 1,519 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales revenue | $ | 5,997 | $ | 12,969 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | 237 | 181 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax expense | 85 | 359 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 347 | 380 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selected financial data for Bahama Bay and Caribbean Key are as follows:
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2-a. Calculate the return on assets for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)
Return on Assets Ratio
Bahama Bay=
Caribbean Key=
2-b. Which company appears more profitable?
Bahama Bay | |
Caribbean Key |
3-a. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)
Return on Assets Ratio
Bahama Bay=
Caribbean Key=
2-b. Which company appears more profitable?
Bahama Bay | |
Caribbean Key |
3-a. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. (Do not round intermediate calculations. Round ratios answers to 1 decimal place. Enter dollar answer in millions. (i.e., $5,500,000 should be entered as 5.5).)
Times Interest Earned Ratio
Bahama Bay=
Caribbean Key=
3-b. Which company is better able to meet interest payments as they become due?
Bahama Bay
Caribbean Key
Solutions:
1 a) Debt Equity Ratio =Debt/ Equity
Bahama Bay = 8172/ 1711 = 4.78 Hence Debt Equity Ratio = 4.78:1
Caribbean Key = 7613/ 1470= 5.18 Hence Debt Equity Ratio = 5.18:1
1 b) Caribbean Key has the higher ratio (5.18)
2 a) Return on Assets Ratio = Net Income/Average Assets
Bahama Bay
Average Asset = (9883+9802)/2 = 9842.5
Net Income = 347
Return on Assets Ratio = 347/9842.5 = 0.03
Hence Return on Assets Ratio = 0.03:1
Caribbean Key
Average Asset = (9083+9122)/2 = 9102.50
Net Income = 380
Return on Assets Ratio = 380/9102.5 = 0.04
Hence Return on Assets Ratio = 0.04:1
2 b) Caribbean Key appears more profitable ( 0.04 )
3 a) Interest earned ratio = Net Income+ Tax+ Interest/Interest
Bahama Bay
Net Income+ Tax+ Interest = 347+85+237 = 669
Interest = 237
Interest earned ratio = 669/237 = 2.82 times
Ratio = 2.82 : 1
Caribbean Key
Net Income+ Tax+ Interest = 380+359+181 = 920
Interest = 181
Interest earned ratio = 920/181 = 5.08 times
Ratio = 5.08 : 1
3 b ) Carribbean Key is better able to meet interest payments as they become due.