The following information comes from the financial statements of Ron Winmill Company:
|
Long term debt |
$180,000 |
|
Total liabilities |
230,000 |
|
Total stockholders equity |
150,000 |
|
Current assets |
80,000 |
|
Earnings before income taxes |
11,000 |
|
Interest expense |
23,000 |
Required
Compute the following ratio values. State any assumptions that you make.
1.Current ratio.
2.Debt ratio.
3.Debt to equity ratio.
4.Times interest earned.
5. Interpretive Question: You are a bank manager considering making a new $20,000 loan to Ron Winmill that would replace part of the existing long term debt. You expect Ron Winmill to repay your loan in two years. Which of the ratios computed in (1) through (4) would be most useful to you in evaluating whether to make the loan to Ron Winmill?