Homework Answers
Asset turn over ratio.
= Total sales / (Beginning assets+Ending assets)/2
So the calculation for the both years will be as follows
2014
Net sales(2014) = $ 2475000
Assets at the ending of 2014 = 4175000
Assets at the beginning of 2014 = 4099000
So inserting the values in formula
*2475000/(4175000+4099000)/2
*2475000/4137000
*0.59 times
2013
Net sales (2013) = 2360000
Average assets during 2013 (given in the question) = 4068000
inserting the values in formula
*2360000/4068000
*.58 times
Times interest earned ratio
Earnings before interest and taxes/Interest expenses
2014
Profit (net) = $ 376000
Interest = $ 36000
Tax expense = $ 86000
EBIT = Profit(net)+interest+tax expense
EBIT = $ 376000+36000+86000 = $ 498000
Times interest earned ratio = $ 498000/ 36000 = 13.83 times
2013
Profit (net) = $ 329000
Interest = $ 41000
Tax expense = $ 78000
EBIT = Profit(net)+interest+tax expense
EBIT = $ 329000+41000+78000 = $ 448000
Times interest earned ratio = $ 448000/ 41000 = 10.93 times
| 2014 | 2013 | |
| Asset turnover | 0.59 | 0.58 |
| Times interest earned | 13.83 | 10.93 |
What is Asset turnover ratio ?
Asset turnover ratio can be described as how the assets of company are being used to generate the revenues for company.it measures how revenues/sales are generated in relation to assets held by company.For example if asset turnover of a company is 2.3 then it represents that for each $ 1 of asset held by company it generates $ 2.3 of revenues/sales
What is times interest earned ratio ?
Times interest ratio can be described as how company will service its interest/debt obligations based on its current income.it represents the ability of an organisation to honor its debt obligations.
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