Answered: Pare Plumbing Products Ltd. reported…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Pare

Plumbing Products Ltd. reported the following data in

2018

(in millions):

Data table

		2018
	Net operating revenues. . . . . . . .	$32.7
	Operating expenses. . . . . . . . . .	28.2
	Operating income. . . . . . . . . . . .	4.5
	Nonoperating items:
	Interest expense. . . . . . . .	(1.1)
	Other. . . . . . . . . . . . . . . . .	(0.1)
	Net income. . . . . . . . . . . . . . . . . .	$3.3

	Total assets. . . . . . . . . . . . . . . . .	$200.0
	Total stockholders' equity. . . . . .	74.0

Compute

Pare's

leverage ratio, debt ratio, and times-interest-earned ratio, and write a sentence to explain what those ratio values mean. Use year-end figures in place of averages where needed for the purpose of calculating the ratios. Would you be willing to lend

Pare

$1 million? Why or why not? (Enter all amounts in millions.)

First, compute

Pare's

leverage ratio. Determine the formula for the leverage ratio. Then enter the amounts to calculate the leverage ratio. (Round your answer to two decimal places, X.XX.)

Leverage ratio

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