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Homework answers / question archive / Use the information in the table below to calculate the following ratios
ratios. Discuss the results to compare the financial positions of the two firms:
Complete the empty frames in the following table and show your work below (identify calculations by letter). For example, Spaling's interest expense can be inferred from EBIT and Times interest earned, since TIE = EBIT / Interest expense.
Calculation for A:
EBIT = 300,000, TIE = 30, so 30 = 300,000 / Interest expense, and Interest expense = 300,000 / 30 = 10,000
Spaling Preston
EBIT (Earnings before interest and taxes) 300,000 190,000
Interest expense A 15,000
Net income 200,000 J
Dividend payout ratio 35% K
Retention ratio B 60%
Dividends declared during the year C 40,000
Sales 3,000,000 L
Average assets during the year D 1,500,000
Average debt during the year 700,000 M
Average shareholders' equity during the year 1,950,000 N
Asset turnover ratio E 1.3333
Debt ratio F 0.3333=1/3
Return on sales G 0.095
Return on assets 0.12 O
Return on equity H 0.10
Market price per share, beginning of year 20 P
Market price per share, end of year 15 20
Total shareholder return I 0.1556
Number of shares outstanding 150,000 50,000
Times interest earned 30 Q
