财务报告与分析三友会计名著译丛 第07章习题答案doc.docx
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财务报告与分析三友会计名著译丛第07章习题答案doc
Chapter7
Long-TermDebt-PayingAbility
PROBLEMS
PROBLEM71
Earningsbeforeinterestandtax:
Netsales$1,079,143
Costofsales（792,755）
Sellingandadministration（264,566）
$21,822
a.
b.Cashbasistimesinterestearned:
PROBLEM72
RecurringEarningsExcludingInterest
Expense,TaxExpense,EquityEarnings,
a.TimesInterestEarned=andMinorityEarnings
InterestExpense,Including
CapitalizedInterest
Incomebeforeincometaxes$675
Plusinterest60
Adjustedincome$735
Interestexpense$60
TimesInterestEarned=$735=12.25timesperyear
$60
b.
Adjustedincomefrom（parta）$735
1/3ofoperatingleasepayments
（1/3x$150）50
Adjustedincome,includingrentals$785
Interestexpense$60
1/3ofoperatingleasepayments50
$110
FixedChargeCoverage=$785=7.14timesperyear
$110
PROBLEM73
RecurringEarnings,ExcludingInterest
Expense,TaxExpense,EquityEarning,
a.TimesInterestEarned=andMinorityEarnings________________
InterestExpense,Including
CapitalizedInterest
Incomebeforeincometaxesand
extraordinarycharges$36
Plusinterest16
（1）Adjustedincome52
（2）Interestexpense$16
TimesInterestEarned:
（1）dividedby
（2）=3.25timesperyear
RecurringEarnings,ExcludingInterest
Expense,TaxExpense,EquityEarnings,
andMinorityEarnings+InterestPortion
b.FixedChargeCoverage=OfRentals______________________________
InterestExpense,IncludingCapitalized
Interest+InterestPortionOfRentals
Adjustedincome（parta）$52
1/3ofoperatingleasepayments
（1/3x$60）20
（l）Adjustedincome,includingrentals$72
Interestexpense$16
1/3ofoperatingleasepayments20
（2）Adjustedinterestexpense$36
Fixedchargecoverage:
（1）dividedby
（2）=2.00timesperyear
PROBLEM74
a.DebtRatio=
b.Debt/EquityRatio=
c.RatioofTotalDebttoTangibleNetWorth=
TotalLiabilities=$174,979=$174,979=70.9%
TangibleNetWorth$249,222$2,324$246,898
d.KaufmanCompanyhasfinancedover41%ofitsassetsbytheuseoffundsfromoutsidecreditors.TheDebt/EquityRatioandtheDebttoTangibleNetWorthRatioareover70%.Whethertheseratiosarereasonabledependsuponthestabilityofearnings.
PROBLEM7-5
Ratio
Transaction
Times
Interest
Earned
Debt
Ratio
Debt/
Equity
TotalDebt/
Tangible
NetWorth
a.Purchaseofbuildingsfinancedbymortgage
b.Purchaseinventoryonshort-termloan
c.Declarationandpaymentofcashdividend
d.Declarationandpaymentofstockdividend
e.Firmincreasesprofitsbycuttingcostofsales
f.Appropriationofretainedearnings
g.Saleofcommonstock
h.Repaymentoflong-termbankloan
i.Conversionofbondstocommonstock
j.Saleofinventoryatgreaterthancost
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PROBLEM76
a.TimesInterestEarned:
Timesinterestearnedrelatesearningsbeforeinterestexpense,tax,minorityearnings,andequityincometointerestexpense.Thehigherthisratio,thebettertheinterestcoverage.Thetimesinterestearnedhasimprovedmateriallyinstrengtheningthelongtermdebtposition.Consideringthatthedebtratioandthedebttotangiblenetworthhaveremainedfairlyconstant,theprobablereasonfortheimprovementisanincreaseinprofits.
Thetimesinterestearnedonlyindicatestheinterestcoverage.Itislimitedinthatitdoesnotconsiderotherpossiblefixedcharges,anditdoesnotindicatetheproportionofthefirmsresourcesthathavecomefromdebt.
DebtRatio:
Thedebtratiorelatesthetotalliabilitiestothetotalassets.
Thelowerthisratio,thelowertheproportionofassetsthathavebeenfinancedbycreditors.
ForArodexCompany,thisratiohasbeensteadyforthepastthreeyears.Thisratioindicatesthatabout40%ofthetotalassetshavebeenfinancedbycreditors.Formostfirms,a40%debtratiowouldbeconsideredtobereasonable.
Thedebtratioislimitedinthatitrelatesliabilitiestothebookvalueoftotalassets.Manyassetswouldhaveavaluegreaterthanbookvalue.Thistendstooverstatethedebtratioand,therefore,usuallyresultsinaconservativeratio.Thedebtratiodoesnotconsiderimmediateprofitabilityand,therefore,canbemisleadingastothefirm’sabilitytohandlelongtermdebt.
DebttoTangibleNetWorth:
Thedebttotangiblenetworthrelatestotalliabilitiestoshareholders'equitylessintangibleassets.Thelowerthisratio,thelowertheproportionoftangibleassetsthathasbeenfinancedbycreditors.
ArodexCompanyhashadastableratioofapproximately81%forthepastthreeyears.Thisindicatesthatcreditorshavefinanced81%asmuchastheshareholdersaftereliminatingintangiblesfromtheshareholderscontributionformostfirms,thiswouldbeconsideredtobereasonable.Thedebttotangiblenetworthratioismoreconservativethanthedebtratiobecauseoftheeliminationofintangibleitems.Itisalsoconservativeforthesamereasonthatthedebtratiowasconservative,inthatbookvalueisusedfortheassetsandmanyassetshaveavaluegreaterthanbookvalue.Thedebttotangiblenetworthratioalsodoesnotconsiderimmediateprofitabilityand,therefore,canbemisleadingastothefirm'sabilitytohandlelongtermdebt.
CollectiveinferencesonemaydrawfromtheratiosofArodex,Company:
OverallitappearsthatArodexCompanyhasareasonableandimprovinglongtermdebtposition.Thedebtratioandthedebttotangiblenetworthratiosindicatethattheproportionofdebtappearstobereasonable.Thetimesinterestearnedappearstobereasonableandimproving.
ThestabilityofearningsandcomparisonwithindustryratioswillbeimportantinreachingaconclusiononthelongtermdebtpositionofArodexCompany.
b.Ratiosarebasedonpastdata.Thefutureiswhatisimportant,anduncertaintiesofthefuturecannotbeaccuratelydeterminedbyratiosbaseduponpastdata.
Ratiosprovideonlyoneaspectofafirm'slong-termdebt-payingability.Otherinformation,suchasinformationaboutmanagementandproducts,isalsoimportant.
Acomparisonofthisfirm'sratioswithratiosofotherfirmsinthesameindustrywouldbehelpfulinordertodecideiftheratiosarereasonable.
PROBLEM77
RecurringEarnings,ExcludingInterest
a.1.TimesInterestExpense,TaxExpense,EquityEarnings,
Earned=andMinorityEarnings_________________
InterestExpense,Including
CapitalizedInterest
$162,000=8.1timesperyear
$20,000
2.DebtRatio=TotalLiabilities
TotalAssets
$193,000=32.2%
$600,000
3.Debt/EquityRatio=TotalLiabilities
Stockholders'Equity
$193,000=47.4%
$407,000
4.DebttoTangibleNetWorthRatio=TotalLiabilities
TangibleNetWorth
$193,000=49.9%
$407,000$20,000
b.Newassetstructureforallplans:
Assets
Currentassets$226,000
Property,plant,and
equipment554,000
Intangibles20,000
Totalassets$800,000
LiabilitiesandEquity
PlanA
CurrentLiabilities$93,000$200,000,000/100=
Longtermdebt100,0002,000,000shares
Preferredstock250,000
Commonequity357,000Nochangeinnetincome
$800,000
PlanB
Currentliabilities$93,000$200,000,000/10=
Longtermdebt100,00020,000,000shares
Preferredstock50,000
Commonstock120,000
Premiumoncommonstock300,000
Retainedearnings137,000Nochangeinnetincome
$800,000
PlanC
Currentliabilities$93,000OperatingIncome$162,000
Longtermdebt300,000Interestexpense52,000*
Preferredstock50,000110,000
Commonequity357,000Taxes（40%）44,000
$800,000NetIncome$66,000
*$20,000+16%（$200,000）=$52,000
1.RecurringEarnings,ExcludingInterestExpense,
TimesInterestTaxExpense,EquityEarnings,andMinorityEarnings
Earned=InterestExpense,IncludingCapitalizedInterest
PlanAPlanBPlanC
2.Debt=TotalLiabilities
RatioTotalAssets
PlanAPlanBPlanC
3.Debt/EquityRatio=
PlanAPlanBPlanC
4.DebttoTangibleNetWorth=
PlanAPlanBPlanC
c.PreferredStockAlternative:
Advantages:
1.Lesserdropinearningspersharethanunderthecommonstockalternative.
2.Nottheabsolutereductioninearningsthataccompaniedthedebtalternative.
3.TherewouldbeanimprovementintheDebtRatio,Debt/EquityRatio,andTotalDebttoTangibleNetWorthRatio.
4.Doesnothavethereducedtimesinterestearnedthataccompaniedalternativeofissuinglongtermdebt.
Disadvantages:
1.Anincreaseinthefixedpreferreddividendchargethatthefirmmustpaybeforeanydividendscanbepaidtocommonstockholders.
CommonStockAlternative:
Advantages:
1.Noincreaseinfixedobligations.
2.TherewouldbeanimprovementintheDebtRatio,Debt/EquityRatio,andtheTotalDebttoTangibleNetWorthRatio.
3.Nottheabsolutereductioninearningsthataccompaniedthedebtalternative.
4.Doesnothavethereducedtimesinterestearnedthataccompaniedalternativeofissuinglongtermdebt.
Disadvantages:
1.Maximumdilutioninearningspershareofthethreealternatives.
Long-TermBondsAlternative:
Advantages:
1.Higherearningspersharethanwithcommonstock.
Disadvantages:
1.MaterialdeclineinTimesInterestEarned.
2.AmaterialincreaseintheDebtRatio,Debt/EquityRatio,
andTotalDebttoTangibleNetWorthRatio.
3.Absolutereductioninearnings.
4.Increaseintheinterestfixedchargethatmustbepaid.
d.The10%pre
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