Question

Financial​ ratios: Financial leverage.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window:  

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. Calculate the debt​ ratio, times interest earned​ ratio, and cash coverage ratio for 2013 and 2014 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?

What is the debt ratio for​ 2014?

​(Round to four decimal​ places.)

Tyler Toys, Inc.
Income Statement for Years Ending December 31, 2013 and 2014
	2014	2013
Revenue	$14,146,478	$13,566,975
Cost of goods sold	$-8,448,686	$-8,131,622
Selling, general, and administrative expenses	$-998,694	$-980,457
Depreciation	$-1,498,330	$-1,472,521
EBIT	$3,200,768	$2,982,375
Interest expense	$-376,152	$-355,309
Taxes	$-1,073,354	$-998,285
Net income	$1,751,262	$1,628,781

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Tyler Toys, Inc.
Balance Sheet as of December 31, 2013 and 2014
ASSETS	2014	2013	LIABILITIES	2014	2013
Current assets			Current liabilities
Cash	$190,708	$186,813	Accounts payable	$1,546,844	$1,455,192
Investments	$181,807	$121,780	Short-term debt	$312,968	$332,542
Accounts receivable	$668,453	$630,045	Total current liabilities	$1,859,812	$1,787,734
Inventory	$588,758	$563,625	Long-term liabilities
Total current assets	$1,629,726	$1,502,263	Debt	$7,286,251	$6,604,954
Long-term assets			Other liabilities	$1,463,940	$1,345,233
Investments	$3,054,756	$2,828,724	Total liabilities	$10,610,003	$9,737,921
Plant, property, and equipment	$8,497,392	$8,481,502	OWNERS’ EQUITY
Goodwill	$347,579	$347,255	Common stock	$1,457,977	$1,453,354
Intangible assets	$1,158,990	$956,315	Retained earnings	$2,620,463	$2,924,784
			Total owners’ equity	$4,078,440	$4,378,138
			TOTAL LIABILITIES
TOTAL ASSETS	$14,688,443	$14,116,059	AND OWNERS’ EQUITY	$14,688,443	$14,116,059

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Answer 1

			2013		2014
1-	debt ratio = total of liabilities/total of assets		68.98%		72.23%
	total of liabilities		9,737,921		10,610,003
	total of assets		14,116,059		14,688,443
	Debt ratio has increased in comparison of previous year which is a concern for shareholders
2-	Interest coverage ratio = operarting profit/interest expense		8.39		8.51
	EBIT		2,982,375		3,200,768
	Interest		355,309		376,152
	Interest coverage ratio or times interest earned ratio has increased from the previous year so this is not a concern for the stockholders or debt holders
3-	cash coverage ratio	cash and cash equivalent/total current assets	22.86%		20.54%
	cash and cash eqivalent	190708+181807	372515	186813+121780	308593
	total current assets		1629726		1502263
	this ratio has decreased means less cash available for payment of current liabilities, it may be a cause of concern to debt holders