In your readings you've read about Capital structure. The mix of capital that a firm...
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Accounting
In your readings you've read about Capital structure. The mix of capital that a firm uses to finance its investments affects the value of the firm.
The income statements for Home Depot, Inc. (HD) spanning the period 2014-2016 are found below:
| 2014 | 2015 | 2016 | |
| Earnings before interest and taxes | $7,316,000 | $9,700,000 | $9,425,000 |
| Interest expense | (696,000) | (392,000) | (143,000) |
| Income before tax | $6,620,000 | $9,308,000 | $9,282,000 |
| Income tax expense | (2,410,000) | (3,547,000) | (3,444,000) |
| Net Income | $4,210,000 | $5,761,000 | $5,838,000 |
- Calculate the times interest earned ratio for each of the years for which you have data.What does this ratio tell you about Home Depot?
- What is your assessment of how the firm's ability to service its debt obligations has changed over this period?
- How does the change in debt affect the firm's cost of capital?
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