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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.

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

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Chapter
Section
BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
Chapter 17, Problem 17.14EX
Textbook Problem
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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):

Chapter 17, Problem 17.14EX, Ratio of liabilities to stockholders equity and number of times interest charges are earned Hasbro

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)

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 of Solution

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

Formula:

 Ratio of liabiliti

b)

To determine

To compute: Times interest earned ratio

Given info: Income before income tax and interest expense.

c)

To determine

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

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Chapter 17 Solutions

Accounting (Text Only)
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