Question

In: Accounting

(Amounts in millions or billions) Abott Malick Reamer Income data Total revenues $ 9,729 ¥ 7,912...

(Amounts in millions or billions)

Abott

Malick

Reamer

Income data

Total revenues

$ 9,729

¥ 7,912

€136,507

Operating income

298

229

5,707

Interest expense

40

28

640

Net income

27

11

449

Asset and liability data

(Amounts in millions or billions)

Total current assets

435

4,877

131,587

Long-term assets

75

262

55,267

Total current liabilities

237

2,197

72,700

Long-term liabilities

117

2,325

110,417

Common stockholders' equity

156

617

3,737

1.

 Compare three fictitious companies

​(AbottAbott​,

MalickMalick​,

and

ReamerReamer​)

by calculating the following​ ratios: current​ ratio, debt​ ratio, leverage​ ratio, and​ times-interest-earned ratio. Use​ year-end figures in place of averages where needed for calculating the ratios in this exercise. Based on your computed ratio​ values, which company looks the least​ risky?

Begin by computing the ratios. Start by selecting the formula for the current ratio. Then calculate the current ratios for

AbottAbott​,

MalickMalick​,

and

ReamerReamer.

​(Enter amounts in millions or billions as provided to you in the problem statement. Round the ratios to two decimal​ places.)

Solutions

Expert Solution

Amount in millions/billions
(Amounts in millions or billions) Abott Malick Reamer
Income data
Total revenues $9,729 ¥ 7,912 € 136,507
Operating income 298 229 5,707
Interest expense 40 28 640
Net income 27 11 449
Asset and liability data
(Amounts in millions or billions)
Total current assets 435 4,877 131,587
Long-term assets 75 262 55,267
Total current liabilities 237 2,197 72,700
Long-term liabilities 117 2,325 110,417
Common stockholders' equity 156 617 3,737
Abott Malick Reamer
Current ratio = Current assets / Current liability                                           1.84                                           2.22                                   1.81
(435/237) (4877/2197) (131587/72700)
Debt ratio = Total liability / Total assets                                           0.69                                           0.88                                   0.98
(237+117)/(435+75) (2197+2325)/(4877+262) (110417+72700)/(131587+55267)
Leverage ratio = debt/equity ratio = Total liability / Total shareholders' equity                                           2.27                                           7.33                                 49.00
(237+117)/(156) (2197+2325)/(617) (110417+72700)/(3737)
Times interest earned ratio Operating income / Interest expense                                           7.45                                           8.18                                   8.92
(298/40) (229/28) (5707/640)
Abott looks least risky out of the above as it has reasonable current ratio, least debt ratio and least leverage ratio.

ekkarill92 answered 1 year ago
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