Question

3. Como a wholesaler of whom During expanded its retail by a ding our su dive stops The follow informatio ned from the cative m ents included in the company's 2004 na portalama in th N ISTE The Dee 11.2003 524,000 16,000 To whites Totalckholders' equity Dec 31 FOR THE FISCAL YEARS ENDED S123,000 Depr expense the following fee 2001 and 23 1. Use the information provided here A Delta B nd to Times a 2004 2004 bed on your Comment bietly on the company's wolny between 2003 calculations in part 1 the following for the years indicated 3 Using the indonation provided shove, con A Potte Mein below B. Pearson Assets

Answer 1

1 A

Debt Ratio = Total Assets / Total Liabilities

2003 Debt Ratio = $24000/$46000 = 0.52

2004 Debt Ratio = $55000/$90000 = 0.61

1 B

Times Interest Earned Ratio = Income before Interest and Taxes/Interest Expenses

Income before Interest and Taxes = Net Income + Income Tax Expenses + Interest Expenses

2003 = $12000 + $15000 + $4000 = $21000

2004 = $34000 + $25000 + $11000 = $70000

2003 Times Interest Earned Ratio = $21000/$4000 = 5.25 Times

2004 Times Interest Earned Ratio = $70000/$11000 = 6.36 Times

2

First Let's talk about debt ratio

Debt ratio used to check solvency of the company. It checks how much assets company has to pay off liabilities. Lower debt ratio is always favorable. A lower debt ratio shows more stable business. A 0.5 debt ratio always good for company and less risky.

In 2003 debt ratio is 0.52 which is very near to 0.50 so it means company is stable and capable to pay off liabilities with assets owned.

In 2004 debt ratio is 0.61 which is higher than 0.50 so it means the ratio is some where slighly risky and company should try to reduce it.

3 A

Profit Margin % = Net Income / Net Sales

2004 = $34000/$175000

= 19.43%

3 B

Return Asset = Net Income / Average Total Assets

= $34000 / ($90000 + $46000)/2

= $34000/$68000

= 50%