Question

ABC Co. financial data for 2020 & 2019 are given below: 2020 2019 Total Assets $915,000...

ABC Co. financial data for 2020 & 2019 are given below:

2020 2019

Total Assets $915,000 $877,000

Total Liabilities 653,000 575,000

Cash 52,000 44,000

Interest-bearing debt 549,000 377,000

Net income 153,000 138,000

Interest Expense 11,500 8,900

Tax Expense 21,300 16,600

Depreciation Expense 42,500 32,500

Calculate the debt to equity ratio and the interest coverage ratio using the select financial data provided above for 2019 &2020 (Round answers to 2 decimal places)

2020 2019

Debt to Equity Ratio:

Interest Coverage Ratio: times times

Is ABC Corp.'s leverage improving or deteriorating?

ABC Corp.'s leverage is ______

Is its ability to service its long-term debt improving or deteriorating?

Ability to service its long-term debt is_____

Business   Accounting   
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Answer #1

Answer :

Debt Equity Ratio = DEBT / EQUITY

Interest Coverage Ratio = EBIT / INTEREST EXPENSE

DEBT includes short term as well as long term debt

Particulars 2019 2020
Debt 653000 575000
Equity (Total Assets - Total Liabilities) 262000 302000
Debt Equity Ratio 2.49 1.90
EBIT 153000 138000
Interest expense 11500 8900
Interest Coverage Ratio 13.30 times 15.50 times

1. ABC Corp's leverage is improving. It has become lower from 2.49 to 1.90 between 2019 and 2020.

2. ABC Corp's ability to service debt is improving. It has become higher from 13.30 times to 15.50 times between 2019 and 2020,

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