The following information comes from the financial statements of Walker Company:
Long-term debt . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Required:
Compute the following ratio values. State any assumptions that you make.
1. Debt ratio
2. Debt-to-equity ratio
3. Times interest earned
4. Interpretive Question: You are a bank manager considering making a new $35,000 loan to Walker that would replace part of the existing long-term debt. You expect Walker to repay your loan in two years. Which of the ratios computed in parts (1) through (3) would be most useful to you in evaluating whether to make the loan to Walker?