Requirement 1. Calculate Patterson, Inc.\'s debt ratio and interest coverage rat

Question

Requirement 1. Calculate Patterson, Inc.'s debt ratio and interest coverage ratio as of December 31, 2016. Round to two decimal places. Earnings Begin by calculating Patterson, Inc.'s debt ratio. Select the formula and then enter the amounts to calculate the ratio. (Abbreviation used: EBIT before interest and taxes. Enter the ratio as a decimal to two places, .XX.) Debt ratio Now calculate Patterson, Inc.'s interest coverage ratio. Select the formula and then enter the amounts to calculate the ratio. (Abbreviation used: EBIT = Earnings before interest and taxes. Round the ratio to two decimal places, .Xx.) Interest coverage ratio Requirement 2. What percentage of Patterson, Inc.'s assets belong to the stockholders? (Enter the amount as a whole percent, X%.) % of the company's assets belong to the stockholders. Requirement 3. Would you be willing to extend credit to Patterson, Inc.? Why or why not? (Assume that the average debt ratio for most companies ranges from 0.57 to 0.67 and the average interest coverage ratio for most companies ranges from 1 to 3.) ? | be willing to extend credit to Patterson since the company's debt ratio is The interest coverage ratio ?| indicating that its ability to repay any additional debt is V.

Explanation / Answer

Solution 1:

Debt ratio = Total liabilities / total Assets = ($31,300 + $90,000) / $400,900 = 0.30

Interest coverage ratio = EBIT / Interest expense = $68,900 / $15,900 = 4.33 times

Solution 2:

% of assets belongs to stockholders = Stockholders Equity / Total Assets = $279,600 / $400,900= 69.74%

Solution 3:

Yes, i will be willing to extend credit to Patterson Inc since the company debt ratio is 0.30 indicating that it is having sufficent ability to repay its additional debts.The interest coverage ratio is also higher than industry standard.

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