Question

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Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	30,234			$	35,340		$	35,383
Accounts receivable, net			90,309				64,370			48,622
Merchandise inventory			109,049				85,894			51,270
Prepaid expenses			9,836				9,466			4,052
Plant assets, net			283,464				255,699			225,373
Total assets		$	522,892			$	450,769		$	364,700
Liabilities and Equity
Accounts payable		$	127,596			$	74,656		$	48,622
Long-term notes payable secured by mortgages on plant assets			98,304				105,750			78,987
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			134,492				107,863			74,591
Total liabilities and equity		$	522,892			$	450,769		$	364,700

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	679,760					$	536,415
Cost of goods sold	$	414,654					$	348,670
Other operating expenses		210,726						135,713
Interest expense		11,556						12,338
Income tax expense		8,837						8,046
Total costs and expenses					645,773						504,767
Net income				$	33,987					$	31,648
Earnings per share				$	2.09					$	1.95

For both the Current Year and 1 Year Ago, compute the following ratios:

1) Debt and equity ratios.

(2) Debt-to-equity ratio.

(3-a) Times interest earned.
(3-b) Based on times interest earned, is the company more or less risky for creditors in the Current Year versus 1 Year Ago?

Answer 1