Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from the...

4.2 Ratings (803 Votes)

a
	Current Year	Previous Year
Accounts payable	604000	290000
Current maturities of serial bonds payable	530000	530000
Serial bonds payable, 10%	2370000	2900000
Total liabilities	3504000	3720000

	Current Year	Previous Year
Common stock, $1 par value	90000	110000
Paid-in capital in excess of par	960000	970000
Retained earnings	3330000	2640000
Total stockholders' equity	4380000	3720000

Ratio of liabilities to stockholders' equity:
Current year	0.8	=3504000/4380000
b	1	=3720000/3720000

b
Interest expense:
Current year	290000	=(530000+2370000)*10%
Previous year	343000	=(530000+2900000)*10%

Times interest earned ratio :
Current year	4.6	=(1044000+290000)/290000
Previous year	3.7	=(913500+343000)/343000

c
The ratio of liabilities to stockholders' equity has improved and the times interest earned ratio has improved from the previous year.
These results are the combined result of a larger income before income taxes and lower interest expense in the current year compared to the previous year.

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