Question

E10-10 Calculating and Interpreting the Debt-to-Assets Ratio and Times Interest Earned Ratio (LO 10-5) At May 31, 2016, FedEx Corporation reported the following amounts (in millions) in its financial statements; 2015 $12,100 7,018 Total Assets Total Liabilities Interest Expense Income Tax Expense Net Income 2016 $12,960 7,776 270 300 1,050 Required: 1.Compute the debt-to-assets ratio and times interest earned ratio for 2016 and 2015. (Round your answers to 2 decimal places.) 2016 2015 Debt-to-Assets Times Interest Eamed Ratio 2-a. Creditors were providing a greater (or lesser) proportion of financing for FedEx's assets? Greater Lesser 2-b. FedEx Incorporated was more for less) successful at covering its interest costs, as compared to 2015? More Less

Answer 1

Ans. 1	Debt to assets ratio =   Total liabilities / Total assets * 100
	2016	$7,776 / $12,960 * 100	60%
	2015	$7,018 / $12,100 * 100	58%
	Time interest earned = Income before interest and taxes / Interest expenses
	2016	$1,620 / $270	6.00	times
	2015	$1,485 / $270	5.50	times
	*Calculation of income before interest and taxes:
			2016	2015
	Net income		$1,050	$970
	Add: Income tax expense		$300	$245
	Net income before tax		$1,350	$1,215
	Add: Interest expense		$270	$270
	Income before interest and tax		$1,620	$1,485
Ans. 2 a	Greater
	Creditors are providing greater proportion of financing for FedEx's assets in 2016 (60%)
	in comparison to 2015 (58%).
Ans. 2 b	More
	FedEx incorporated is more successful at covering its iterest costs in 2016 (6 times) in
	comparison to 2015 (5.50 times).