Question

the book states.. Interpret the ratios... If the company ratio is better than the industry enter...

the book states.. Interpret the ratios... If the company ratio is better than the industry enter "B". If it is worse, enter "W".

Question

DEBT RATIO: =

COMPANY  54%

INDUSTRY  45%

Question

TIMES INTEREST EARNED: =

COMPANY  9.4 TIMES

INDUSTRY  3.6 TIMES

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Homework Answers

Answer #1

Debt Ratio = Total Liabilities / Total Assets

It measures how much the total asset is finaced by debt ie; company's leverage. High debt ratio means the company depends more in debt financing (less in equity financing) which is more risky. In this case the industry debt ratio is only 45% whereas for company is 54%, which is worst case, put W

Times Interest Earned (TIE) = EBIT/Total Interest

It measures the company's ability to meet its debt obligation. Hence larger larger ratio is favorable. Here company has high TIE than industry hence better, type B

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