Question

Simon Company’s year-end balance sheets follow.

At December 31	2017			2016			2015
Assets
Cash	$	36,335		$	42,472		$	42,524
Accounts receivable, net		107,459			73,568			56,120
Merchandise inventory		139,163			102,226			60,994
Prepaid expenses		12,179			11,377			4,773
Plant assets, net		333,281			312,096			273,889
Total assets	$	628,417		$	541,739		$	438,300
Liabilities and Equity
Accounts payable	$	159,605		$	89,723		$	59,013
Long-term notes payable secured by mortgages on plant assets		120,505			123,354			94,927
Common stock, $10 par value		162,500			162,500			162,500
Retained earnings		185,807			166,162			121,860
Total liabilities and equity	$	628,417		$	541,739		$	438,300

The company’s income statements for the years ended December 31, 2017 and 2016, follow.

For Year Ended December 31	2017						2016
Sales				$	816,942					$	644,669
Cost of goods sold	$	498,335					$	419,035
Other operating expenses		253,252						163,101
Interest expense		13,888						14,827
Income taxes		10,620						9,670
Total costs and expenses					776,095						606,633
Net income				$	40,847					$	38,036
Earnings per share				$	2.51					$	2.34

Calculate the company’s long-term risk and capital structure positions at the end of 2017 and 2016 by computing the following ratios.
(1) Debt and equity ratios. Debt Ratio 1 Choose Denominator: Choose Numerator: = Debt Ratio Debt ratio 2017: 2016: Equity Ratio Choose Denominator: Choose Numerator: = Equity Ratio Equity ratio 2017: 2016:

Answer 1

Requirement:1 = Years 2017 2016 Numerator Total Liabilities 280110 213077 Debt Ratio 7 Denominator / Total Assets 628417 541739 Debt Ratio Debt Ratio 44.6 % 39.3 % = = Years 2017 2016 Equity Ratio 7 Denominator / Total Assets 628417 541739 Numerator Total Equity 348307 328662 Equity Ratio Equity Ratio 55.4 % 60.7 % Requirement: 2 Years 2017 2016 Debt-to - Equity Ratio Numerator 1 Denominator Total Liabilities / Total Equity 280110 348307 213077 / 328662 Debt-to-Equity Debt-to-Equity 0.80 to 1 0.65 to 1

Requirement: 3 Years 2017 2016 Times Interest Earned Ratio Numerator Denominator | = | Times Interest Earned EBIT 7 Interest Expense= Times Interest Earned 65355 13888 4.7 times 62533 14827 4.2 times Working notes Net Income Income tax Interest expense EBIT 2017 40847 10620 13888 65355 2016 38036 9670 14827 62533