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.

Century 21 Accounting General Journal

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section17.4: Analyzing Financial Statements Using Financial Ratios

Problem 1OYO

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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

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