Analysis of debt ratiosFinancial information for two companies competing in the cosmetics industry

The Estee Lauder Company and e.l.f. Beauty

Inc.appears

in the table below. All dollar values are in thousands.(Click the icon here

in order to copy the contents of the data table below into a spreadsheet.)

	Estee Lauder	e.l.f. Beauty
Total assets	$9,223,500	$414,929
Total liabilities	5,636,200	274,067
EBIT	1,626,100	26,095
Interest expense	70,900	16,383

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.

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