The following information pertains to Austin, Incorporated and Huston Company. Account Title Austin Huston Current assets $ 90,000 $ 87,500 Total assets 320,000 680,000 Current liabilities 29,250 43,750 Total liabilities 210,000 530,000 Stockholders’ equity 290,000 150,000 Interest expense 17,800 21,200 Income tax expense 35,600 30,800 Net income 90,000 93,700 Required a-1. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed). a-2. Which company has the greater financial risk? b. Compute each company’s return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio.
The following information pertains to Austin, Incorporated and Huston Company. Account Title Austin Huston Current assets $ 90,000 $ 87,500 Total assets 320,000 680,000 Current liabilities 29,250 43,750 Total liabilities 210,000 530,000 Stockholders’ equity 290,000 150,000 Interest expense 17,800 21,200 Income tax expense 35,600 30,800 Net income 90,000 93,700 Required a-1. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed). a-2. Which company has the greater financial risk? b. Compute each company’s return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The following information pertains to Austin, Incorporated and Huston Company.
| Account Title | Austin | Huston |
|---|---|---|
| Current assets | $ 90,000 | $ 87,500 |
| Total assets | 320,000 | 680,000 |
| Current liabilities | 29,250 | 43,750 |
| Total liabilities | 210,000 | 530,000 |
| Stockholders’ equity | 290,000 | 150,000 |
| Interest expense | 17,800 | 21,200 |
| Income tax expense | 35,600 | 30,800 |
| Net income | 90,000 | 93,700 |
Required
a-1. Compute each company’s debt-to-assets ratio,
a-2. Which company has the greater financial risk?
b. Compute each company’s return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio.
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