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Homework answers / question archive / Use the information in the table below to calculate the following ratios

Use the information in the table below to calculate the following ratios


Use the information in the table below to calculate the following

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

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