Chapter 16, Problem 13E

Ratio of liabilities to stockholders’ equity and times interest earned

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

The income before income tax expense was $480,000 and $420,000 for the current and previous years, respectively.

1. A. Determine the ratio of liabilities to stockholders’ equity at the end of each year. Round to one decimal place.
2. B. Determine the times interest earned ratio for both years. Round to one decimal place.
3. C. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?