Exercise 17-10 Risk and capital structure analysis LO P3

Exercise 17-10 Risk and capital structure analysis LO P3

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

      

	At December 31			2014			2013			2012
	Assets
	Cash		$	37,119		$	41,704		$	43,016
	Accounts receivable, net			104,449			73,719			57,922
	Merchandise inventory			131,325			96,440			59,256
	Prepaid expenses			11,373			10,726			4,780
	Plant assets, net			326,549			303,976			265,226
	Total assets		$	610,815		$	526,565		$	430,200
	Liabilities and Equity
	Accounts payable		$	156,656		$	90,769		$	55,651
	Long-term notes payable secured by   mortgages on plant assets			112,537			123,532			95,074
	Common stock, $10 par value			162,500			162,500			162,500
	Retained earnings			179,122			149,764			116,975
	Total liabilities and equity		$	610,815		$	526,565		$	430,200

    

The company’s income statements for the years ended December 31, 2014 and 2013, follow.

    

For Year Ended December 31	2014						2013
Sales				$	794,060					$	626,612
Cost of goods sold	$	484,377					$	407,298
Other operating expenses		246,159						158,533
Interest expense		13,499						14,412
Income taxes		10,323						9,399
Total costs and expenses					754,358						589,642
Net income				$	39,702					$	36,970
Earnings per share				$	2.44					$	2.28

     

Calculate the company’s long-term risk and capital structure positions at the end of 2014 and 2013 by computing the following ratios. Explanation: Explanation: Debt-to-equity ratio     $269,193     2014: =  0.79 to 1   $341,622               $214,301     2013: =  0.69 to 1   $312,264     Explanation: Times interest earned     2014: ($39,702 + $10,323 + $13,499) / $13,499 = 4.7 times 2013: ($36,970 + $9,399 + $14,412) / $14,412 = 4.2 times