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Ratio of liabilities to stockholders’ equity and number of times interest charges are earned Hasbro 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): 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) $945,045 $453,402 Interest expense 117,403 88,835 a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place. b. Determine the number of times interest charges are earned for both companies. Round to one decimal place. c. Interpret the ratio differences between the two companies.
Accounting (Text Only)
Solutions
Accounting (Text Only)
Ratio of liabilities to stockholders’ equity and number of times interest charges are earned
Hasbro 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):
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) | $945,045 | $453,402 |
| Interest expense | 117,403 | 88,835 |
a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.
b. Determine the number of times interest charges are earned for both companies. Round to one decimal place.
c. Interpret the ratio differences between the two companies.
a)
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 of Solution
Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.
Formula:
b)
To compute: Times interest earned ratio
Given info: Income before income tax and interest expense.
c)
To provide: Conclusion about company’s ability to meet its currently maturing debt.
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