assume an initial times interest earned of more than 1 and a debt ratio debt equity 641780

Aug 30, 2021 | Uncategorized

5 Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.

Ratio Transaction

Times Interest Earned

Debt Ratio

Debt/Equity
Ratio

Debt to Tangible
Net Worth

a. Purchase of buildings financed by mortgage.

        

b. Purchase of inventory on short term

loan at 1% over prime rate.

        

c. Declaration and payment of cash
dividend.

        

d. Declaration and payment of stock
dividend.

        

e. Firm increases profits by cutting cost
of sales.

        

f. Appropriation of retained earnings.

        

g. Sale of common stock.

        

h. Repayment of long term bank loan.

        

i. Conversion of bonds to common stock
outstanding.

        

j. Sale of inventory at greater than cost.

        

Required Indicate the effect of each of the transactions on the ratios listed. Use þ to indicate an increase, _ to indicate a decrease, and 0 to indicate no effect. Assume an initial times interest earned of more than 1, and a debt ratio, debt/equity ratio, and a total debt to tangible net worth of less than 1.