Crane Medical manufactures hospital beds and other institutional furniture. The
ID: 2588320 • Letter: C
Question
Crane Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.
Calculate the following leverage ratios for 2016. (Round all answers to 2 decimal places, e.g. 2.55% or 2.55.)
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets Cash $433,000 $417,450 Accounts receivable, net 1,058,000 776,400 Inventory 738,000 681,100 Other current assets 393,000 247,100 Total current assets 2,622,000 2,122,050 Property, plant, & equipment, net 8,659,780 8,440,045 Total assets $11,281,780 $10,562,095 Liabilities and Stockholders’ Equity Current liabilities $3,142,000 $2,846,050 Long-term debt 3,714,000 3,892,700 Total liabilities 6,856,000 6,738,750 Preferred stock, $5 par value 67,000 58,950 Common stock, $0.25 par value 164,000 103,900 Retained earnings 4,194,780 3,660,495 Total stockholders’ equity 4,425,780 3,823,345 Total liabilities and stockholders’ equity $11,281,780 $10,562,095
Explanation / Answer
Answer A.:
Total Liabilities = Current Liabilities + Long term debt
Total Liabilities = $3,142,000 + $3,714,000
Total Liabilities
= $6,856,000
Total Assets = $11,281,780
Total Debt Ratio = Total Liabilities / Total Assets
Total Debt Ratio = $6,856,000 / $11,281,780
Total Debt Ratio = 0.6077 or 60.77%
Answer B:
Total Debt = Current Liabilities + Long term debt
Total Debt = $3,142,000 + $3,714,000
Total Debt = $6,856,000
Total stockholders equity = $4,425,780
Debt-to-equity ratio = Total Debt / Total stockholders’ equity
Debt-to-equity ratio = $6,856,000 / $4,425,780
Debt-to-equity ratio = 1.55
Answer C:
EBIT = $1,724,950
Interest Expense = $300,400
Times interest earned ratio = EBIT / Interest Expense
Times interest earned ratio = $1,724,950 / $300,400
Times interest earned ratio = 5.74 times