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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Ratio Analysis

Rising Stars Academy provided the following information on its 2019 balance sheet and state mcnt of cash flows:

Long-term debt

S 4,400

Interest expense

S 398

Total liabilities

8,972

Net income

559

Total assets

38,775

Interest payments

432

Total equity

29,803

Cash flows from operations

1.015

Operating income

1.223

Income tax expenses

266

Income taxes paid

150

Required:

  1. Calculate the following ratios for Rising Stars: (a) debt to equity, (b) debt to total assets, (c) long-term debt to equity, (d) times interest earned (accrual basis), and (e) times interest earned (cash basis). (Note: Round answers to three decimal places.)
  2. CONCEPTUAL CONNECTION Interpret these results.

3.What does it mean if a bond is “callable’

To determine

(a)

Introduction:

Debt to equity ratio gives the firm valuation of its finances. It shows the ratio of debt financing of the company to its equity financing.

To calculate:

Debt to equity ratio.

Explanation

Debt to Equity Ratio = Total DebtTotal Equity

Wherein,

Total debts = $8,972

Total Equity = $29,803

Debt t

To determine

(b)

Introduction:

Debt to total assets is a financial ratio that shows what part of asset is financed using its debt (liabilities).

To calculate:

Debt to total assets.

To determine

(c)

Introduction:

Long Debt to equity ratio gives the firm valuation of its finances. It shows compares the ratio financing through long term liability and equity of the company.

To calculate:

Long term debt to equity.

To determine

(d)

Introduction:

Times Interest Earned can either be on accrual basis of interest expense or cash basis of interest payment measured with respect to pretax income as interest is tax deductible.

To calculate:

Times Interest Earned (Accrual basis).

To determine

(e)

Introduction:

Times Interest Earned can either be on accrual basis of interest expense or cash basis of interest payment measured with respect to pretax income as interest is tax deductible.

To calculate:

Times Interest Earned (Cash basis).

To determine

(b)

Introduction:

Times Interest Earned can either be on accrual basis of interest expense or cash basis of interest payment measured with respect to pretax income as interest is tax deductible.

To interpret:

The result of calculated ratios.

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