11.4Calculate financial leverage measures The following information was available for the year ended December 31, 2016:Earnings before interest and taxes (operating income)$120,000Interest expense 20,000Income tax expense 30,000Net income   70,000Total assets at year-end 400,000Total liabilities at year-end 240,000Required:Calculate the debt ratio at December 31, 2016.Calculate the debt/equity ratio at December 31, 2016.Calculate the times interest earned for the year ended December 31, 2016.

Asked Aug 1, 2019

Calculate financial leverage measures The following information was available for the year ended December 31, 2016:
Earnings before interest and taxes (operating income)
Interest expense 20,000
Income tax expense 30,000
Net income   70,000
Total assets at year-end 400,000
Total liabilities at year-end 240,000
Calculate the debt ratio at December 31, 2016.
Calculate the debt/equity ratio at December 31, 2016.
Calculate the times interest earned for the year ended December 31, 2016.


Expert Answer

Step 1

Calculate the debt ratio.


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Debt ratio = Total liabilities Total assets $240.000 $400,000 0.6

Step 2

Calculate the debt to equity ratio:

Step 1: Calculate the amount of shareholder’s equity.


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Total shareholders' equity Total assets - Total liabilities = $400.000-$240.000 = $160,000

Step 3

Step 2: Calculate the debt to equ...


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Total liabilities Debt equity ratio= Total sharholders' equity $240,000 $160.000 1.5


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