Answer
EXERCISE 15–4 Financial Ratios for Debt Management
Solution:-
Weller Corporation
(dollars in thousands)
For this Year
1. Times interest earned ratio = 10.8 (rounded)
2. Debt-to-equity ratio = 0.44 (rounded)
3. Equity multiplier = 1.45 (rounded)
Work Step by Step
$Working:- $
$ 1.\ Times\ interest\ earned\ ratio = \frac{ Earnings\ before\ interest\ expense\ and\
income\ taxes }{ Interest\ expense } = \frac{$6,500}{$600} = 10.8 (rounded) $
$ 2.\ Debt-to-equity\ ratio = \frac{ Total\ liabilities }{ \ Stockholders’\ equity } = \frac{$15,400}{$34,880} = 0.44 (rounded) $
$ 3.\ Equity\ multiplier = \frac{ Average\ total\ assets }{ Average\ stockholders’\ equity} = \frac{ \frac{$50,280 + $45,960 }{ 2} }{\frac{$34,880 + $31,660}{2} } = \frac{$48,120}{$33,270} = 1.45(rounded) $
