Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company. Ratio of fixed assets to long-term liabilities: Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities. Formula: Ratio of fixed assets to long-term liabilities = Fixed assets Long-term liabilities To compute: Ratio of fixed assets to long-term liabilities. Given info: Fixed assets and long-term liabilities

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Jane Yoakim, President of Estefan Co., recently read an article that claimed that at least 100 of the country's 500 largest companies were either adopting or considering adopting the last in, first out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to (1) neutralize the effect of inflation in their financial statements, (2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakim wonders if the switch would benefit her company. Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets. Ms. Yoakim has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the…

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Chapter 14, Problem 14.6BE

a)

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Ratio of fixed assets to long-term liabilities: Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities

To compute: Ratio of fixed assets to long-term liabilities.

Given info: Fixed assets and long-term liabilities

b)

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Ratio of liabilities to stockholders’ equity: Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity

To compute: Ratio of liabilities to stockholders’ equity

Given info: Total liabilities and Stockholders’ equity

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Jane Yoakim, President of Estefan Co., recently read an article that claimed that at least 100 of the country's 500 largest companies were either adopting or considering adopting the last in, first out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to (1) neutralize the effect of inflation in their financial statements, (2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakim wonders if the switch would benefit her company. Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets. Ms. Yoakim has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the…

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