Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statements for the 2 most recent years.

Required:
1. Compute the following for each year: (a) the times-interest-earned ratio and (b) the debt ratio
2. Does Kepler have too much debt? What other information would help in answering this question?

Transcribed Image Text:

Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment, net Total assets Kepler Company Comparative Balance Sheets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Short-term notes payable Total current liabilities Long-term bonds payable, 12% Total liabilities Stockholders' equity: Common stock (100,000 shares) Retained earnings Total liabilities and stockholders' equity This Year $ 50,000 300,000 600,000 25,000 $ 975,000 125,000 $1,100,000 $ 400,000 200,000 $ 600,000 100,000 $ 700,000 200,000 200,000 $1,100,000 Last Year $ 100,000 150,000 400,000 30,000 $ 680,000 150,000 $830,000 $ 290,000 60,000 $ 350,000 150,000 $ 500,000 200,000 130,000 $830,000