H_2O Corporation is a wholesaler of scuba gear. During 2004 is obtained from the
ID: 2453988 • Letter: H
Question
H_2O Corporation is a wholesaler of scuba gear. During 2004 is obtained from the business by adding over 50 dive shops. The following information is obtained from the comparative financial statements including in the company's 2004 annual report (all amounts are in thousands): Using the information provided above, compute the following for 2004 and 2003: Debit ratio Times interest and ratio Comment briefly on the company's solvency between 2003 and 2004 based on your ratio calculations in part 1. Using the information provided above, compute the Mowing for the years indicated below: Profit Margin % Return on investmentExplanation / Answer
Answer:1 A.Debt ratio 2004:
Debt Ratio=(Total debt/Total Asset)*100
=($55000/$90000)*100=61.11%
2003: ($24000/$46000)*100=52.17%
B. Time interest earned ratio=EBIT/Interest expense
2004: (($34000+$25000+$11000)/$11000)=6.36 times
2003:(($12000+$15000+$4000)/$4000)=7.75 times
Answer:2 In 2004 debt ratio is increases as compared to previous years.It means that company has been aggressive in financing its growth with debt and with high level of risk.Time interest earned ratio is decreased in 2004 as compared to previous years it means fewer earnings are available to meet interest payments. Failing to meet these obligations could force a company into bankruptcy. It is used by both lenders and borrowers in determining a company’s debt capacity.
Answer:3 A Profit Margin %=(Net income/Net sales)*100
2004=($34000/$175000)*100
=19.43%
B. Return on assets=(Net income/Average Assets)*100
=($34000/[($90000+$46000)/2])=50%
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