Question

$ 31 $ 101 Focus Metals Inc. Comparative Balance Sheet Information November 30 (millions of $) 2017 2016 Cash Accounts receivable (net) 446 292 Inventory 90 83 Plant and equipment (net) 2,846 2,930 Accounts payable 337 253 Long-term notes payable 1,850 2,410 Common shares 450 450 Retained earnings 776 293 “90% of the plant and equipment are secured by long-term notes payable. Focus Metals Inc Income Statement For Year Ended November 30 (millions of $) 2017 2016 Net sales $3,030 $2,232 Cost of goods sold 1,052 842 $1,978 $1,390 Gross profit Operating expenses: Depreciation expense Other expenses $118 785 S118 652 Total operating expenses Profit from operations Interest expense Income tax expense 903 770 $1,075 $620 185 219 5963 Profit $831 $338 Required: Calculate Focus Metals solvency ratios for 2016 and 2017.Use Exhibit 17.14. (Round the final answers to 2 decimal places.) 2017 2016 Ratio Debt ratio I Equity ratio Pledged assets to secured liabilities Times interest earned Analysis Component: Identify whether the change in each ratio from 2016 to 2017 was favourable or unfavourable. Favourable/ Unfavourable Ratio Debt ratio Equity ratio Pledged assets to secured liabilities Times interest earned

Answer 1

	Debt Ratio = Total Debt / Total Assets
		2017	2016
		= $2187/3413	= $2663/3406
		=64.08%	=78.19%
	Equity Ratio =Equity / Total Assets
		2017	2016
		=($450+776)/3413	=($450+293)/3406
		=35.92%	=21.81%
	Pleadged Asset to Long term liability= (Plant And Equipment)*90% /Notes Payable
		2017	2016
		=(2846*0.90)/1850	=(2930*0.90)/2410
		=1.38	=1.09
	Times Interest Earned Ratio = EBIT/ Interest expenses
		2017	2016
		= $1075/185	= $620/219
		=5.81 times	=2.83 times
	Debt Ratio		Favorable
	Equity Ratio		Favorable
	A pledged asset to liability ratio		Favorable
	times interest earned ratio		Favorable