Chapter 17, Problem 14E

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
1 views

# Ratio of liabilities to stockholdersâ€™ equity and times interest earnedHasbro, Inc. and Mattel, Inc. are the two largest toy companies in North America. Condensed liabilities and stockholdersâ€™ equity from a recent balance sheet are shown for each company as follows (in thousands):The income from operations and interest expense from the income statement for each company were as follows (in thousands): a. Determine the ratio of liabilities to stockholdersâ€™ equity for both companies. Round to one decimal place. b. Determine the times interest earned ratio for both companies. Round to one decimal place. c. Interpret the ratio differences between the two companies.

(a)

To determine

Compute ratio of liabilities to stockholders’ equity.

Explanation

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Ratio of liabilities to stockholdersâ€™ equity is determined by dividing liabilities and stockholdersâ€™ equity.

Formula:

Â RatioÂ ofÂ liabilitiesÂ toÂ stockholders'Â equity=TotalÂ liabilitiesStockholders'Â equity

Compute ratio of liabilities to stockholdersâ€™ equity for H.Â

Â RatioÂ ofÂ liabilitiesÂ toÂ stockholders'Â equity}=TotalÂ liabilitiesStockholders'Â equity=

(b)

To determine

Compute times interest earned ratio.

(c)

To determine

Provide conclusion about company’s ability to meet its currently maturing debt.

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