You are analyzing the company's ability to pay its long-term obligations, calculating the following things:
To calculate the solvency ratios for Lucky 7, Inc., you will need the following information from the company’s income statement and balance sheet. You will be calculating the solvency ratios for 2016.
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| 2016 | 2015 |
|---|---|---|
| Total assets | $644,000 | $408,500 |
| Total liabilities | $279,500 | $176,200 |
| Total stockholders' equity | $364,500 | $232,300 |
| Total liabilities and stockholders' equity | $644,000 | $408,500 |
|
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| 2016 | 2015 |
|---|---|---|
| Interest expense | $24,000 | $15,000 |
| Income taxes expense | $21,000 | $9,875 |
| Net income | $49,000 | $29,625 |
The debt ratio measures how much of the company's assets have been financed by debt. The debt ratio is calculated as follows: NOTE: This ratio does not appear in the textbook.
The debt to equity ratio measures the proportion of total liabilities to total stockholders’ equity. The debt to equity ratio is calculated as follows:
The times interest earned ratio measures the company's ability to pay its interest expense with the current year’s income before interest and taxes. The times interest earned ratio is calculated as follows: