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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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Ratio of liabilities to stockholders’ equity and ratio of fixed assets to long-term liabilities

Recent balance sheet information for two companies in the food industry, Mondelez International, Inc. and The Hershey Company, is as follows (in thousands):

Chapter 17, Problem 15E, Ratio of liabilities to stockholders equity and ratio of fixed assets to long-term liabilities

  1. a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.
  2. b. Determine the ratio of fixed assets to long-term liabilities for both companies. Round to one decimal place.
  3. 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 stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

 Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity

Compute ratio of liabilities to stockholders’ equity for M. 

 Ratio of liabilities to stockholders' equity}=Fixed assets (Net)Long-term liabilities=$10,010,000$28,390,000=0.4

Compute ratio of liabilities to stockholders’ equity for H

(b)

To determine

Compute ratio of fixed assets to long-term liabilities

(c)

To determine

Interpret the ratio differences between the two companies.

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