Answer:
1. Interest coverage ratio=8.33
2. debt stockholder ratio=0.624
3. debt ratio=0.21
Explanation:
Leverage ratio is a financial tool used to determine a company's level of debt and it's ability to handle debt without going bankrupt.
1. Consider the interest coverage ratio formula;
interest coverage ratio=operating income/interest expense
where;
operating income=$260,000
interest expense= $31,200
replacing;
interest coverage ratio=260,000/31,200=8.33
2. Consider the debt to equity ratio formula;
debt to equity ratio=debt/stockholder equity
where;
debt=interest expense=$31,200
stockholder equity= $50,000
replacing;
debt stockholder ratio=31,200/50,000=0.624
3. Consider the debt ratio formula;
debt ratio=debt/assets
where;
debt=interest expense=$31,200
average assets=(beginning asset balance+ending asset balance)/2
average assets=(115,000+180,000)/2=$147,500
replacing;
debt ratio=31,200/147,500=0.21
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