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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ratio of liabilities to stockholders’ equity and times interest earned

Hasbro, Inc. and Mattel, Inc. are the two largest toy companies in North America. Condensed liabilities and stockholders’ equity from a recent balance sheet are shown for each company as follows (in thousands):

Hasbro Mattel
Liabilities:    
Current liabilities $ 1,064,647 $ 1,645,572
Long-term debt 1,547,115 1,800,000
Other liabilities 404,883 473,863
Total liabilities $3,016,645 $3,919,435
Stockholders' equity:    
Common stock $ 104,847 $ 441,369
Additional paid in capital 893,630 1,789,870
Retained earnings 3,852,321 3,745,815
Accumulated other comprehensive loss and other equity items (146,001) (848,899)
Treasury stock, at cost (3,040,895) (2,494,901)
Total stockholders' equity $ 1,663,902 $ 2,633,254
Total liabilities and stockholders' equity $ 4,680,547 $ 6,522,689

The income from operations and interest expense from the income statement for each company were as follows (in thousands):

  Hasbro Mattel
Income from operations (before income tax) $603,915 $463,915
Interest expense 97,122 85,270

a. Determine the ratio of liabilities to stockholders’ 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

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

To compute: Ratio of liabilities to stockholders’ equity

Given info: Total liabilities and Stockholders’ equity

Explanation

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

 Ratio o

(c)

To determine

To provide: Conclusion about company’s ability to meet its currently maturing debt.

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