Question

As Reported Annual Income Statement Report Date 2018 2017 2016 Scale Thousands Thousands Thousands Net sales...

As Reported Annual Income Statement
Report Date 2018 2017 2016
Scale Thousands Thousands Thousands
Net sales $                                                         71,309,000 $68,619,000 $65,017,000
Cost of sales $                                                         48,401,000 $45,210,000 $42,553,000
Gross margin $                                                         22,908,000 $23,409,000 $22,464,000
Selling, general & administrative expense $                                                         17,413,000 $15,376,000 $15,129,000
Depreciation & amortization $                                                           1,477,000 $ 1,447,000 $ 1,489,000
Operating income (loss) $                                                           4,018,000 $ 6,586,000 $ 5,846,000
Interest income (expense), net $                                                            (624,000) $   (633,000) $   (645,000)
Loss on extinguishment of debt $                                                                      -   $   (464,000) $             -  
Pre-tax earnings (losses) $                                                           3,394,000 $ 5,489,000 $ 5,201,000
Income tax provision $                                                           1,080,000 $ 2,042,000 $ 2,108,000
Net earnings $                                                           2,314,000 $ 3,447,000 $ 3,093,000

Compute:

  • Times interest earned
  • Return on Financial leverage

Homework Answers

Answer #1

Answer :

Times Interest Earned = (Operating Income + Depreciation) / Interest

  • For 2016 = ($5,846,000 + $1,489,000) / $645,000 = 11.37 times
  • For 2017 = ($6,586,000 + $1,447,000) / $633,000 = 12.69 times
  • For 2018 = ($4,018,000 + $1,447,000) / $624,000 = 8.76 times

Return on Financial Leverage = Interest X 100 / EBIT

  • For 2016 = 645,000 x 100 / 5,846,000 = 11.03%
  • For 2017 = 633,000 x 100 / 6,586,000 = 9.61%
  • For 2018 = 624,000 x 100 / 4,018,000 = 15.53%

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