Question

Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs...

Simon Company’s year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash 36,194 43,603 43,630
Accounts receivable, net 103,832 76,305 58,767
Merchandise inventory 137,278 100,832 65,135
Prepaid expenses 11,656 11,332 4,897
Plant assets, net 337,022 307,568 277,271
Total assets 625,982 539,640 449,700
Liabilities and Equity
Accounts payable 158,987 89,375 57,580
Long-term notes payable secured by
mortgages on plant assets
116,508 122,876 98,390
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 187,987 164,889 131,230
Total liabilities and equity 625,982 539,640 449,700


The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31 Current Yr 1 Yr Ago
Sales 813,777 642,172
Cost of goods sold 496,404 417,412
Other operating expenses 252,271 162,470
Interest expense 13,834 14,770
Income tax expense 10,579 9,633
Total costs and expenses 773,088 604,285
Net income 40,689 37,887
Earnings per share 2.50 2.33


For both the Current Year and 1 Year Ago, compute the following ratios:

(3-a) Times interest earned.
(3-b) Based on times interest earned, is the company more or less risky for creditors in the Current Year versus 1 Year Ago?

** There is no incomplete sentences

Homework Answers

Answer #1
Particulars Current Yr 1 Yr Ago
Sales $ 813,777 $ 642,172
Less: Cost of Goods Sold ($ 496,404 ) ($ 417,412 )
Less: Other Operating Expenses ( $ 252,271 ) ($ 162,470 )
Income before Interest and tax $ 65,102 $ 62,290
3a)
Income before Interest and taxes / Interest expense = Times Interest Earned
Current Yr $ 65,102 / $ 13,834 = 4.71 times
1 Yr Ago $ 62,290 / $ 14,770 = 4.22 times
3b) Less Risky
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