Question

For many years, Borders Group and Barnes and Noble were the dominant booksellers in the United States. They experienced rapid growth, and in the process they forced many small, independent bookstores out of business. Recently, Borders filed for bankruptcy. It was the victim of its inability to change with the times. It did not develop a viable business plan for dealing with digital books and online sales. Below is financial information (in millions) for the two companies, taken from the annual reports of each company one year before Borders filed for bankruptcy. Borders Current assets Total assets Current liabilities Barnes and Noble $1,719.5 3,705.7 1,724.4 2,802.3 36.7 28.2 8.4 $978.7 1,415.6 918.1 1,257.3 (109.4) 24.1 (31.3) Total liabilities Net income/(loss) Interest expense Tax expense/income tax benefit) Compute the current ratio for each company. (Round answers to 2 decimal places, e.g. 6.25:1.) Borders Barnes and Noble Current ratio Compute the debt to assets ratio and times interest earned for each company. (Hint: A tax benefit means that rather than pay taxes, the company was due a refund because of its losses. For ratio purposes, a tax benefit is treated the opposite of tax expense.) (Round times interest earned to 2 decimal places, e.g. 15.25 and other answers to O decimal places, e.g. 15%. Enter negative answers using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Borders Barnes and Noble Debt to assets 이 Times interest earned times times

Answer 1

For Borders

Current ratio = Current assets/ Current liabilities

= 978.7/918.1

= 1.06

Debt to assets = Total liabilities / Total assets

= 1,257.3/1,415.6

= 89%

Times interest earned = (Net income + Interest expense + Tax expense)/Interest expense

= (-109.40+24.1-31.3)/24.1

= 116.6/24.1

= -4.83 times

For Barnes and Noble

Current ratio = Current assets/ Current liabilities

= 1,719.5/1,724.4

= 0.99

Debt to assets = Total liabilities / Total assets

= 2,802.3/3,705.70

= 75%

Times interest earned = (Net income + Interest expense + Tax expense)/Interest expense

= (36.7+28.2+8.4)/28.2

= 73.3/28.2

= 2.59 times

	Borders	Barnes and Noble
Current Ratio	1.06 : 1	0.99 : 1
Debt to assets	89%	75%
Time interest earned	-4.83 times	2.59 times

Kindly comment if you need further assistance.

Thanks‼!