Credit analysis ratios Formulae Time-interest eamed EBIT/Interest ENIT+Deprecation+Amortization EBITDA interest expense Cash from operations to total debt ratio Cash from operations Short-term debt+Long-term debt Current ratio Current assets Current liabilities Cash+Marketable securities+Account recievables Quick ratio Current liabilities Total liabilities Liability-to-equity ratio Stockholders equity Totul debt-to-equity ratio- Long-term debt+Short-term debe Stockholders, equity I EXHIBIT 1 Balance Sheets (figures in 5 millions) The LM Manufacturing Company December 31, 2017 and 2018 2017 2018 Current Assets Cash Accounts receivable Inventories Prepaid expenses Total current assets $39 $70 $177 $14 $300 $44 $78 5210 SIS 5347 Fixed asset Gross plant and equipment Accumulated depreciation Net plant and equipment Land Totalfixed asset Five years maturity Bond investment Patents Total assets 5759 $355 5404 $70 5474 $390 S30 51,194 $838 $383 $455 $70 $525 5490 $55 $1,417 N> T Liabilities and equity Current Liabilities: Accounts Payable Income tax payable Accrued wages and salaries Interest payable Total Current liabilities Long-term notes payable 10 year Bonds payable 25 years mortgage loan Total liabilities: 361 $12 $4 $2 $79 $146 $240 $150 5615 $76 $17 $4 S2 $99 $200 $250 $240 $789 Common stock Retained Earnings Preferred stocks Treasury stocks Total Stockholders' equity Total liabilities and equity $310 $260 $19 (810) $579 $1,194 $308 $300 $28 (58) $628 151,417 5830 $539 5291 EXHIBIT 2 Income Statement (figures in 5 millions) The LM Manufacturing Company For the Year Ending December 31, 2018 Sales Cost of Goods Sold Gross Profit on Sales Operating Expenses Marketing Expenses General and Administrative Expenses Depreciation Total Operating Expenses Operating Income (EBIT) Interest Expense Earnings Before Income Tax (20%) Earning after Tex(Net income) 591 571 $28 $190 SIDI 21 580 SIS 564 Questions Answer the following questions using the financial statements of LM manufacturing company: 1. Calculate and interpret the Time-interest earned and EBITDA ratios of the Company in 2018. Does the company has the capacity to cover its interest expenses? 2. Calculate and interpret the cash from operations to total debt ratio of the Company in 2018? 3. What is the liquidity ratio of the Company in 2018? Does the company has the capacity to make payments of its current liability? 4. Calculate the solvency ratios of the Company in 2018 and interpret the implication of the ratios on the ability of the company to pay its loans