Homework Answers
| a )Calculation of Debt Ratio | |||
| Debt Ratio= Total Liabilities / Total Assets | |||
| Dream works | Pixar | Universal | |
| Total Liab. | 112700 | 150000 | 46080 |
| Total Assets | 115000 | 165000 | 98000 |
| Deb Ratio | 0.98 | 0.91 | 0.47 |
Note: The lower the debt ratio the lower will be the risk for the company. Thus Universal company has lower debt when compared to other two companies.
b. Dreamworks company has largest financial leverage because high debt relative to share holders equity. They measure the ability of company to pay its debts. High debt ratio indicates more financing is done from creditors rather than investor financing. Lower debt or equity ratio implies more financially stable company.
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Assets
2017
2016
Cash
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$ 69,000
Debt investments (short-term)
54,000
39,000
Accounts receivable
107,000
90,000
Inventory
236,000
162,000
Prepaid expenses
30,000
27,000
Land
133,000
133,000
Building and equipment (net)
260,000
188,000
Total assets
$892,000
$708,000
Liabilities and Stockholders’ Equity
Notes payable
$170,000
$106,000
Accounts payable
65,000
54,000
Accrued liabilities
42,000
42,000
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250,000
171,000
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209,000
209,000
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The following financial information is for Pharoah
Company.
PHAROAH COMPANY
Balance Sheets
December 31
Assets
2017
2016
Cash
$ 72,000
$ 69,000
Debt investments (short-term)
54,000
39,000
Accounts receivable
107,000
90,000
Inventory
236,000
162,000
Prepaid expenses
30,000
27,000
Land
133,000
133,000
Building and equipment (net)
260,000
188,000
Total assets
$892,000
$708,000
Liabilities and Stockholders’ Equity
Notes payable
$170,000
$106,000
Accounts payable
65,000
54,000
Accrued liabilities
42,000
42,000
Bonds payable, due 2020
250,000
171,000
Common stock, $10 par
209,000
209,000
Retained...
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