Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 5, Problem 6QE
A firm had the following values for the four debt ratios discussed in the chapter:
Liabilities to Assets Ratio: less than 1.0
Liabilities to Shareholders’ Equity Ratio: equal to 1.0
Long-Term Debt to Long-Term Capital Ratio: less than 1.0
Long-Term Debt to Shareholders’ Equity Ratio: less than 1.0
- a. Indicate whether each of the following independent transactions increases, decreases, or has no effect on each of the four debt ratios.
- (1) The firm issued long-term debt for cash.
- (2) The firm issued short-term debt and used the cash proceeds to redeem long-term debt (treat as a unified transaction).
- (3) The firm redeemed short-term debt with cash.
- (4) The firm issued long-term debt and used the cash proceeds to repurchase shares of its common stock (treat as a unified transaction).
- b. The text states that analysts need not compute all four debt ratios each year because the debt ratios are highly correlated. Does your analysis in Requirement a support this statement? Explain.
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Can you please give correct answer for this accounting question?
The Debt to Equity ratio calculation measures
Group of answer choices
c. How much debt the company has for every dollar of Equity
b. The amount of Assets that are financed by debt
None of the above
a. The ability of the company to pay its’ current obligations
Write the formula for the following ratios and what each ratio measures:
Debt-to-assets ratio
Asset to Shareholders’ Equity (also called “equity multiplier” )
Interest coverage ratio (also called “times interest earned”)
Chapter 5 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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