Question

Camper Company and McSead, Inc., are the two largest toy companies in North America. Condensed liabilities and stockholders' equity from a recent balance sheet are shown for each company as follows (in thousands):

		Camper		McSead
Current liabilities		$3,560,000		$6,703,000
Long-term debt		1,916,800		2,660,000
Other liabilities		_		1,277,000
	Total liabilities	$5,476,800		$10,640,000
Shareholders' equity:
	Common stock	$266,000		$1,197,000
	Additional paid in capital	822,000		4,389,000
	Retained earnings	5,112,000		4,523,000
	Accumulated other comprehensive
	loss and other equity items	59,000		(732,000)
Treasury stock, at cost		(2,347,000)		(2,727,000)
Total stockholders' equity		$3,912,000		$6,650,000
Total liabilities and stockholders' equity		$9,388,800		$17,290,000

The income from operations and interest expense from the income statement for both companies were as follows (in thousands):

	Camper		McSead
Income from operations	$999,360		$2,506,480
Interest expense	104,100		329,800

a. Determine the ratio of liabilities to stockholders' equity for both companies. Round to one decimal place.

Camper Company
McSead Inc.

b. Determine the number of times interest charges are earned for both companies. Round to one decimal place.

Camper Company
McSead Inc.

c. Together, these ratios indicate that both companies provide creditors with a margin of safety, and that earnings appear to make interest payments.

Answer 1

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