The balance sheet for Shaver Corporation reported the following: cash, $10,500; short-term investments, $15,500; net accounts receivable, $46,000; inventories
The balance sheet for Shaver Corporation reported the following: cash, $10,500; short-term investments, $15,500; net accounts receivable, $46,000; inventories, $51,000; prepaids, $15,500; equipment, $117,000; current liabilities, $51,000; notes payable (long-term), $81,000; total stockholders’ equity, $123,500; net income, $4,420; interest expense, $6,600; income before income taxes, $8,580.
Compute Shaver’s debt-to-assets ratio and times interest earned ratio. (Round your answers to 2 decimal places.)
2-a. Based on these ratios, does it appear Shaver relies mainly on debt or equity to finance its assets?
Debt
Equity
2-b. Is it probable that Shaver will be able to meet its future interest obligations?
Yes
No
Homework Answers
Answer:
| Ans 1 | ||
| Debt to assets | ||
| 132000/255500 | 0.52 | |
| Total assets | ||
| 10500+15500+46000+51000+15500+117000 | 2,55,500 | |
| Total debts | ||
| 51000+81000 | 1,32,000 | |
| Times Interest expenses | ||
| EBIT/int exp | ||
| 15180/6600 | 2.30 | times |
| EBIT | ||
| EBT+Interest exp | ||
| 8580+6600 | 15180 | |
| ans 2 | ||
| Debt | ||
| Yes , as its .52 i.e approx 52% of total assets is financed by debt | ||
| ans 2b Yes, as the times interest earned ratio is 2.30 times | ||
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The balance sheet for Shaver Corporation reported the following: cash, $10,500; short-term investments, $15,500; net accounts receivable, $46,000; inventories
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