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Financial​ ratios: Financial leverage.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​...

Question:

Financial​ ratios: Financial leverage.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window:  

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. Calculate the debt​ ratio, times interest earned​ ratio, and cash coverage ratio for 2013 and 2014 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?

What is the debt ratio for​ 2014?

​(Round to four decimal​ places.)

Tyler Toys, Inc.

Income Statement for Years Ending December 31, 2013 and 2014

2014

2013

Revenue

$14,146,478

$13,566,975

Cost of goods sold

$-8,448,686

$-8,131,622

Selling, general, and
administrative expenses

$-998,694

$-980,457

Depreciation

$-1,498,330

$-1,472,521

EBIT

$3,200,768

$2,982,375

Interest expense

$-376,152

$-355,309

Taxes

$-1,073,354

$-998,285

Net income

$1,751,262

$1,628,781

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Tyler Toys, Inc.

Balance Sheet as of December 31, 2013 and 2014

ASSETS

2014

2013

LIABILITIES

2014

2013

Current assets

Current liabilities

Cash

$190,708

$186,813

Accounts payable

$1,546,844

$1,455,192

Investments

$181,807

$121,780

Short-term debt

$312,968

$332,542

Accounts receivable

$668,453

$630,045

Total current liabilities

$1,859,812

$1,787,734

Inventory

$588,758

$563,625

Long-term liabilities

Total current assets

$1,629,726

$1,502,263

Debt

$7,286,251

$6,604,954

Long-term assets

Other liabilities

$1,463,940

$1,345,233

Investments

$3,054,756

$2,828,724

Total liabilities

$10,610,003

$9,737,921

Plant, property, and equipment

$8,497,392

$8,481,502

OWNERS’ EQUITY

Goodwill

$347,579

$347,255

Common stock

$1,457,977

$1,453,354

Intangible assets

$1,158,990

$956,315

Retained earnings

$2,620,463

$2,924,784

Total owners’ equity

$4,078,440

$4,378,138

TOTAL LIABILITIES

TOTAL ASSETS

$14,688,443

$14,116,059

AND OWNERS’ EQUITY

$14,688,443

$14,116,059

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Answers

2013 2014
1- debt ratio = total of liabilities/total of assets 68.98% 72.23%
total of liabilities 9,737,921 10,610,003
total of assets 14,116,059 14,688,443
Debt ratio has increased in comparison of previous year which is a concern for shareholders
2- Interest coverage ratio = operarting profit/interest expense 8.39 8.51
EBIT 2,982,375 3,200,768
Interest 355,309 376,152
Interest coverage ratio or times interest earned ratio has increased from the previous year so this is not a concern for the stockholders or debt holders
3- cash coverage ratio cash and cash equivalent/total current assets 22.86% 20.54%
cash and cash eqivalent 190708+181807 372515 186813+121780 308593
total current assets 1629726 1502263
this ratio has decreased means less cash available for payment of current liabilities, it may be a cause of concern to debt holders
.

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