M10-13 (Algo) Computing the Debt-to-Assets Ratio and the Times Interest Earned Ratio [LO 10-5]

The balance sheet for Shaver Corporation reported the following: cash, $9,000; short-term investments, $14,000; net accounts receivable, $43,000; inventory, $48,000; prepaids, $14,000; equipment, $105,000; current liabilities, $48,000; notes payable (long-term), $78,000; total stockholders equity, $107,000; net income, $4,120; interest expense, $6,000; income before income taxes, $7,680.

Required:

1. Compute Shavers debt-to-assets ratio and times interest earned ratio.

2-a. Based on these ratios, does it appear Shaver relies mainly on debt or equity to finance its assets?

2-b. Is it probable that Shaver will be able to meet its future interest obligations?