Question

Exercise 13-9 Risk and capital structure analysis LO P3 The following information applies to the questions displayed below) Simon Company's year-end balance sheets follow. 2017 2016 2015 At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 28,642 $ 31,838 $ 32,853 80,570 56,29145, 131 101,302 74,385 49,026 9.133 8.788 3.724 256,284 238,983 284,466 $475,931 $410,285 $335,200 $119,692 $ 68,645 $ 43,361 92,159 93,422 72,598 162,500 162,500 162,500 101,580 85,718 56, 741 $475,931 $410,285 $335, 200 The company's income statements for the years ended December 31, 2017 and 2016, follow. For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share 2017 $618,710 $377,413 191,800 10,518 8,043 587,774 $ 30,936 $ 1.90 2016 $488,239 $317,355 123,524 11,229 7,324 459, 432 $ 28,807 $ 1.77 Calculate the company's long-term risk and capital structure positions at the end of 2017 and 2016 by computing the following ratios. Sverries 12.0 Dart 1

Answer 1

851 Debt Ratio Choose Numerator: Choose Denominator = Debt Ratio Total liabilities / Total assets - Debt Ratio 2017: $ 475931 44.5 2016: I $ 162,067 $410,205 = 39.5 % Equity Ratio Choose Numerator: 1 Choose Denominator Equity Ratio Total equity 1 Total assets = Equity Ratio 2017: $264080 1 $475, 931 = 55.5 % 2016: $248,2181 $410,285 = 60.5 % Calculation: Total diabilities =(Accounts Payable tlong term notes payable) 2017: Total liabilities = $119,692 + $92,159 2 $21,851 2016 Total liabilities = $68,645 + $93,422 $162,067 To tal equity = (Common stock & Retained earnings) 2017: Total equity = $162,500+ $101,580 = $264080 2016: Total equity = $162,500 + $85,718 = $248,218

Debt-To-Equity Ratio Debt-to-Equity Choose Numerator / Choose Denominator Ratio Debt-To-Equity Total liabilities / Total equuty = 8 Ratio 2017: $ 211, 851 / $ 264,080 = 0.80 to 1 I 2016: $162,067 V $248,218 = 0.65 to 1 Note: Total liabilities and total equity are Calculated above in part (1) , 3, Times Interest earned Choose Denominator Choose Numerator: 1 ame before interest / Interest T Times Interest = Times Interest - Earned 4.7 times expense and income tax $ 49,497 2 $10, 518 2017. 2016: $ 47, 360 & 11,229 = 4.2 times Calculation : Income before interest and income tax = (Sales - cost of a sold - Other operating expenses) 2017: Income before interest and income tax = ($618,710 - $377,413 - $191,800) - $49,497 2016 Income before interest and income tax = ($488,239 - $317,355 - $123,524) = $47,360