Textbook Problem

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.