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3 years ago

On october 10, the stockholders’ equity of sherman systems appears as follows:

Business

1 answer:

Anuta_ua [19.1K]3 years ago

7 0

On October 10, the stockholders’ equity of Sherman systems appears as follows:

Common Stock ,$10 par value, 72,000 shares authorized, issued and outstanding = 720,000

Paid-in capital in excess of par value, common stock = 216,000

Retained earnings = 864,000

Total stockholders' equity = 1,800,000

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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;

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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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