Question

Chilly Moose Fruit Producer has a total asset turnover ratio of 6.00x, net annual sales of $40 million, and operating expenses of $18 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $1.75 million on which it pays a 7% interest rate. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Chilly Moose Fruit's debt management ratios? Value Ratio Debt ratio Times-interest-earned ratio Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with debt ratios.

Answer 1

Given, Asset turnover Ratio = 6 Total sales = $40 million operating eupenses = $18 million Total debt = $1.75 million interest rate= 7% We know | Asset turnover Ratio = Total Sales Total Assets 6 = Totat. 40 Total Assets Total Assets = 40 ie $ 6.67 million And, Total Assets = 6.67 = Total Equityt debt Equity t 1.75 $4.92 milliá 40 40 And, - Total Sales (-) operating en penses EBIT $22 million Calculation Delt Ratio = of DEBY Debt - Total Assets RATIO 1.75 = 6.67 0.26

Calculation of Times Interest earned = earned Times interest EBIT interesteupease 22 (1.75X7%) 22 001225 179.59 (2) Creditors would prefer companies with LOWER to debt give ratios loans to
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