a.
Debt ratio:
Debt ratios are expressed to determine the company’s ability to pay off its entire liabilities through the resources that it owns. It means that this ratio will determine the future solvency of the company.
Requirement 1
To compute:
The debt ratio of S for the current year and the prior year.
b.
Financial leverage:
Financial leverage refers to the company’s obligations on the company’s assets. The more the financial leverage of an entity, the greater will be the risk for the company for future sustainability. As more financial leverage attracts more fixed costs, it is always advisable for every company to check for its financial leverage to be under the controllable level.
Requirement 2
Whether S’s financial leverage increased or decreased in the current year.
c.
Financial leverage:
The more the financial leverage of an entity, the greater will be the risk for the company for future sustainability. As more financial leverage attracts more fixed costs, it is always advisable for every company to check for its financial leverage to be under the controllable level. The companies with more leverage will be less attracted in the eyes of the investors as it will prove to be a risky investment in terms of payment of interest and repayment of capital.
Requirement 3
Whether S is more or less risky than A and G in terms of debt ratio.
Want to see the full answer?
Check out a sample textbook solutionChapter 2 Solutions
FINANCIAL+MANAG.ACCT.
- Nonearrow_forwardSelected financial data for Bahama Bay and Caribbean Key are as follows:Required:1. Calculate the debt to equity ratio for Bahama Bay and Caribbean Key for the most recent year. Which company has the higher ratio?2. Calculate the return on assets for Bahama Bay and Caribbean Key. Which company appears more profitable?3. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. Which company is better able to meet interest payments as they become due?arrow_forwardUnder what situation will return on equity be higher than return on investment? a. When assets exceed liabilities. b. When the debt to equity ratio is greater than 1.0. c. When net income is higher than it was in the previous year. d. When a company earns more on borrowed money than the interest it must pay.arrow_forward
- I just need assistance with h.arrow_forwardAnalyzing the ability to pay liabilities Big Beautiful Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2018. To answer this question, you gather the following data: Compute the following ratios for 2018 and 2017, and evaluate the company’s ability to Pay its current Liabilities and total liabilities: a. Current ratio b. Cash ratio c. Acid-test ratio d. Debt ratio e. Debt to equity ratioarrow_forwardMake sure you provide complete answers, and show your work with calculation problems If a company decides to increase its ratio of total debt / total assets from 30% to 50% as a means of increasing its return on equity (ROE), and it is able to maintain a 7.5% return on assets(ROA), what is the return on equity (ROE) with the two different total debt/total asset ratios?arrow_forward
- 1. What is AT&T’s current ratio for 2019? 2018? Did it increase or decrease? What does that tell you about AT&T’s ability to pay its short term debts? 2. What was AT&T’s Profit Margin Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s investors want to know this? 3. What was AT&T’s Debt Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s lenders want to know this?arrow_forwardUsing the Value Line Investment Survey report in Exhibit 11.5, find the following information for Apple. What was the amount of revenues (i.e., sales) generated by the company in 2017? What were the latest annual dividends per share and dividend yield? What is the earnings per share (EPS) projection for 2019? How many shares of common stock were outstanding? What were the book value per share and EPS in 2017? How much long-term debt did the company have in the third quarter of 2018?arrow_forwardc. Using DuPont framework, compute Bersatu Berhad’s returns on equity for 2020 and 2021? Show all formulas and calculations.d. Is there any significant change in the returns on equity over the two years? What conclusion can you arrive with regards to thefactors influencing the returns on equityarrow_forward
- Balance Sheet: Assets Current Assets 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Cash and cash equivalents Net receivables Inventory 293 300 255 232 401 362 385 460 374 342 437 306 Other current assets 60 43 53 45 Total Current Assets 1,128 1,047 1,130 1,043 Long-term investments 128 97 200 Property, plant, and equipment 979 991 995 1,052 Goodwill 744 748 736 742 Other assets 777 831 902 797 Total Assets 3,756 3,714 3,763 3,834 Liabilities Current Liabilities Accounts payable 876 1,467 922 980 Short/current long-term debt 410 2 173 288 Other current liabilities Total Current Liabilities 1,286 1,469 1,095 1,268 Long-term debt 2,381 2,124 474 475 Other liabilities 435 574 559 551 Total Liabilities 4,102 4,167 2,128 2,294 Total Shareholder's Equity - 346 - 453 1,635 1,540 Total Liabilities and Shareholder's Equity 3,756 3,714 3,763 3,834arrow_forwardREQUIRED Use the information provided in below to answer the following questions for the financial year ended 31 December 2023. Note: Answers to the ratios must be expressed to two decimal places. Comment on the management of debtors and creditors after calculating the relevant ratios. Determine the percentage of the profit after tax that has been retained by the company. Calculate the return on capital employed and comment on your answer. Would prospective lenders be concerned about the relative proportion of borrowed capital and own capital? Motivate your answer by calculating the relevant ratio. Calculate the ratio that measures the efficiency with which the non-current and current assets of company were managed. Comment on the ability of the company to settle its short-term debts under distress conditions. Use a relevant ratio to motivate your answer. INFORMATION The following information was obtained from the financial records of Fiona Limited:arrow_forwardRATIO ANALYSIS The Corrigan Corporation's 2014 and 2015 financial statements follow, along with some industry average ratios. a. Assess Corrigan's liquidity position, and determine how itcompares with peers and how the liquidity position has changed over time.b. Assess Corrigan's asset management position, and determine how it compares with peers and how its asset management efficiency has changed over time.C. Assess Corrigan's debt management position, and determine how it compares with peers and how its debt management has changed over time.d. Assess Corrigan's profitability ratios, and determine how they compare with peers and how its profitability position has changed over time.e. Assess Corrigan's market value ratios, and determine how its valuation compares with peers and how it has changed over time.f. Calculate Corrigan's ROE as well as the industry average ROE, using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry…arrow_forward
- PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage LearningPfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning