Question

Exercise 13-9 Analyzing risk and capital structure LO P3

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Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	25,531			$	29,548		$	30,164
Accounts receivable, net			73,997				53,260			41,449
Merchandise inventory			93,037				68,330			43,265
Prepaid expenses			8,385				7,911			3,420
Plant assets, net			227,495				210,300			192,602
Total assets		$	428,445			$	369,349		$	310,900
Liabilities and Equity
Accounts payable		$	103,482			$	63,668		$	41,860
Long-term notes payable secured by mortgages on plant assets			81,353				84,950			70,083
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			81,110				58,231			36,457
Total liabilities and equity		$	428,445			$	369,349		$	310,900

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				$	556,979					$	439,525
Cost of goods sold	$	339,757					$	285,691
Other operating expenses		172,663						111,200
Interest expense		9,469						10,109
Income tax expense		7,241						6,593
Total costs and expenses					529,130						413,593
Net income				$	27,849					$	25,932
Earnings per share				$	1.71					$	1.60

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

Exercise 13-9 Part 1

(1) Debt and equity ratios.

please help asap

Answer 1

Debt ratio : - Current year

Debt ratio = Total liabilities / Total Asset

Total liabilities = Account payable + Long term note payable secured by

= 103,482 + 81,353

= 1,84,835

Total Asset = 428,445

Debt ratio = 1,84,835 / 428,445

= 0.4314 or 43.14%

Debt ratio: - one year ago

Total liabilities = 63668 + 84950

= 148618

Total Asset = 369349

Debt ratio =  148618 / 369349

= 0.4023 or 40.23%

Equity ratio : - Current year

Equity ratio = Total share holder equity / Total Asset

Total share holder equity = Common stock + Retained earning

= 162500 + 81110

= 243610

Equity ratio = 243610/ 428445

= 0.5685 or 56.85%

Equity ratio: - One year ago

Total share holder equity = 162500 + 58231

= 220731

Total Asset = 369349

Equity ratio = 220731 / 369349

= 0.5976 or 59.76