The following information was available for the year ended December 31, 2016:
| Earnings before interest and taxes (operating income) | $ | 69,000 | |
| Interest expense | 13,000 | ||
| Income tax expense | 18,000 | ||
| Net income | 38,000 | ||
| Total assets at year-end | 230,000 | ||
| Total liabilities at year-end | 132,000 | ||
Required:
a. Calculate the debt ratio at December 31, 2016. (Round your answer to 1 decimal place.)
b. Calculate the debt/equity ratio at December 31,
2016. (Round your answer to 2 decimal places.)
c. Calculate the times interest earned for the year ended December 31, 2016. (Round your answer to 2 decimal places.)
(a)- Debt ratio at December 31, 2016
Debt Ratio = [Total Liabilities / Total Assets] x 100
= [$132,000 / 230,000] x 100
= 57.4%
(b)-Debt/Equity Ratio at December 31, 2016
Debt/Equity Ratio = [Total Liabilities / Total Equity] x 100
Total Equity = Total Assets – Total Liabilities
= $230,000 – 132,000
= $98,000
Debt/Equity Ratio = [Total Liabilities / Total Equity] x 100
= [$132,000 / 98,000] x 100
= 134.69%
(c)- Times interest earned for the year ended December 31, 2016
Times Interest Earned (TIE) Ratio = Earnings before interest and taxes / Interest Expenses
= $69,000 / 13,000
= 5.31 Times
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