Analysis of debt ratios Financial information from fiscal year 2016 for two companies competing in the cosmetics industry - The Estee Lauder Company and e. 1.f. Beauty Inc.appears in the table below. All dollar values are in thousands Total assets Total liabilities EBIT Interest expense Estee Lauder $9,223,300 5.636,000 1,625,900 70,700 e.l.f. Beauty $414,729 273,867 26,095 16,283 a. Calculate the debt ratio and the times interest earned ratio for each company. In what way are these companies similar in terms of their debt usage, and in what way are they very different? b. Calculate the ratio of interest expense to total liabilities for each company. Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for these two firms? Suggest some reasons. a. The debt ratio for Estee Lauder is (Round to three decimal places.) The debt ratio for e.l.f. Beauty is (Round to three decimal places.) The times interest earned ratio for Estee Lauder is (Round to three decimal places.) The times interest earned ratio for e.l.f. Beauty is . (Round to three decimal places.) In what way are these companies similar in terms of their debt usage, and in what way are they very different? (Select the best answer below.) O A. The two companies are similar in the proportion of total assets financed by the firm's creditors, as shown by their similar debt ratios of 0.611 and 0.66. The difference is in each firm's ability to make contractual interest payments, as measured by the times interest earned ratio. The higher the number, the better able the firm is to fulfill its interest obligations. In this case, Estee Lauder's times interest earned ratio of 22.997 indicates they are significantly more able to fulfill their interest obligations than e.l.f. Beauty, whose times interest earned ratio is 1.603. O B. The two companies are similar in the proportion of total liabilities financed by the firm's creditors, as shown by their similar debt ratios of 0.611 and 0.66. The difference is in each firm's ability to make monthly dividend payments, as measured by the times interest earned ratio. The higher the number, the better able the firm is to fulfill its obligations. In this case, Estee Lauder's times interest earned ratio of 22.997 indicates they are significantly more able to fulfill their dividend obligations than e.l.f. Beauty, whose times interest earned ratio is 1.603. O C. The two companies are similar in the proportion of total assets financed by the firm's creditors, as shown by their similar debt ratios of 0.611 and 0.66. The difference is in each firm's ability to make contractual interest payments, as measured by the times interest earned ratio. The lower the number, the better able the firm is to fulfill its interest obligations. In this case, Estee Lauder's times interest earned ratio of 22.997 indicates they are significantly less able to fulfill their interest obligations than e.l.f. Beauty, whose times interest earned ratio is 1.603. OD. The two companies are similar in the proportion of total assets financed by the firm's creditors, as shown by their similar times interest earned ratios of 0.611 and 0.66. The difference is in each firm's ability to make contractual interest payments, as measured by the debt ratio. The higher the number, the better able the firm is to fulfill its interest obligations. In this case, Estee Lauder's debt ratio of 22.997 indicates they are significantly more able to fulfill their interest obligations than e.l.f. Beauty, whose debt ratio is 1.603. b. The ratio of interest expense to total liabilities for Estee Lauder is (Round to three decimal places.) The ratio of interest expense to total liabilities for e.l.f. Beauty is (Round to three decimal places.) Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for these two firms? (Select the best answer below.) O A. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is higher than the level of risk associated with e.l.f. Beauty Lower risk allows a firm to receive lower interest rates. B. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is higher than the level of risk associated with e.l.f. Beauty. Higher risk allows a firm to receive lower interest rates. O b. The ratio of interest expense to total liabilities for Estee Lauder is (Round to three decimal places.) The ratio of interest expense to total liabilities for e.l.f. Beauty is . (Round to three decimal places.) Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for these two firms? (Select the best answer below.) O A. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is higher than the level of risk associated with e.lf. Beauty. Lower risk allows a firm to receive lower interest rates O B. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is higher than the level of risk associated with e.l.f. Beauty. Higher risk allows a firm to receive lower interest rates. O C. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is less than the level of risk associated with e.l.f. Beauty. Higher risk allows a firm to receive lower interest rates. O D. This ratio is trying to measure the interest rate that each firm is paying on its total liabilities. The difference in the ratios for the two firms indicates the level of risk associated with Estee Lauder is less than the level of risk associated with e.l.f. Beauty. Lower risk allows a firm to receive lower interest rates. Click to select your answer(s)