1. Refer to the Simon company information in exercise 17-7 and 17-9. Compare the
ID: 2498788 • Letter: 1
Question
1. Refer to the Simon company information in exercise 17-7 and 17-9. Compare the company’s long-term risk and capital structure positions at the end of 2014 and 2013 by computing these ratios: (1) debt and equity ratios- percent rounded to one decimal, (2) debt-to equity ratio- rounded to two decimals, and (3) times interest earned- rounded to one decimal. Comment on these ratio results.
2. Refer to Simon Company’s financial information in exercise 17-7 and 17-9. Evaluate the company’s efficiency and profitability by computing the following for 2014 and 2013: (1) profit margin ratio-percent rounded to one decimal, (2) total asset turnover- rounded to one decimal, and (3) return on total assets- percent rounded to one decimal. Comment on these ratio results.
Explanation / Answer
1. Debt to equity ratio = Total liabilities/Shareholders equity
2014 = (129,900+98500)/(163,500+131,100) = 77.5%
2013 = (75,250+101,500)/(163,500+104,750) = 65.9%
2014 = (129,900+98500)/(163,500+131,100) = .77
2013 = (75,250+101,500)/(163,500+104,750) = .65
Times Interest earned = Income before Interest and taxes/Interest Exp
2014 = 52725/12100 = 4.3
2013 = Data not given
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
From the above ratios we can see the company's ratio has been increased from 2013 to 2014 resulting into higher debt.
The interest coverage ratio, is a coverage ratio that measures the proportionate amount of income that can be used to cover interest expenses in the future.
A ratio of 4 means that a company makes enough income to pay for its totalinterest expense 4 times over. Said another way, this company's income is 4 times higher than its interest expense for the year.
2)Gross profit margin ratio = Gross profit/Net Sales
2014 = (673500-41125)/673500 = 38.9%
2013 = Data not given can be computed in similar manner
Operating profit margin ratio = Operating profit/Net Sales
2014 = (673500-411225-209550)/673500 = 7.8%
2013 = Data not given can be computed in similar manner
Total asset turnover = Sales/Total Assets
2014 = 673500/523000 = 1.2
2013 = Data not given can be computed in similar manner
Return on Total Asset = EBIT/Total Net Assets
2014 = (673500-411225-209550)/523000 = 10.0%
2013 = Data not given can be computed in similar manner
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