Question

[The following information applies to the questions displayed below.]

Nabisco Company's balance sheet accounts follow:

At December 31		2010		2009		2008
Assets
Cash	$	36,229	$	42,780	$	44,562
Accounts receivable, net		106,073		76,377		57,087
Merchandise inventory		137,408		98,929		62,038
Prepaid expenses		11,548		11,003		4,903
Plant assets, net		335,317		311,062		272,710
Total assets	$	626,575	$	540,151	$	441,300
Liabilities and Equity
Accounts payable	$	157,577	$	94,024		$57,087
Long-term notes payable secured by mortgages on plant assets		116,618		127,962		99,478
Common stock, $10 par value		163,500		163,500		163,500
Retained earnings		188,880		154,665		121,235
Total liabilities and equity	$	626,575	$	540,151	$	441,300

The company's income statements for the years ended December 31, 2010 and 2009, follow:

For Year Ended December 31	2010				2009
Sales			$	685,000			$	557,000
Cost of goods sold	$	417,850			$	356,265
Other operating expenses		207,282				141,971
Interest expense		8,175				8,960
Income taxes		12,900				12,450
Total costs and expenses				646,207				519,646
Net income			$	38,793			$	37,354
Earnings per share			$	2.37			$	2.28

Compare the company's long-term risk and capital structure positions at the end of 2010 and 2009 by computing the following ratios.

(c) Times interest earned.

Answer 1

Timed interest earned = Earning before interest and tax/Interest expense

2010 = (38793+12900+8175)/8175 = 7.32 Times

2009 = (37354+12450+8960)/8960 = 6.56 Times