The following information is computed from Katy Inc.'s annualreport for 2018.
| 2018 | 2017 |
Current assets | $ 2,731,020 | $ 2,364,916 |
Property and equipment, net | 10,960,286 | 8,516,833 |
Intangible assets, at cost less applicable | | |
amortization | 294,775 | 255,919 |
| $13,986,081 | $11,137,668 |
| | |
Current liabilities | $ 3,168,123 | $ 2,210,735 |
Deferred federal income taxes | 160,000 | 26,000 |
Mortgage note payable | 456,000 | - |
Stockholders' equity | 10,201,958 | 8,900,933 |
| $13,986,081 | $11,137,668 |
| | |
Net sales | $33,410,599 | $25,804,285 |
Cost of goods sold | (30,168,715) | (23,159,745) |
Selling and administrative expense | (2,000,000) | (1,500,000) |
Interest expense | (216,936) | (39,456) |
Income tax expense | (400,000 ) | (300,000 ) |
Net income | $ 624,948 | $ 805,084 |
| | |
Note: One-third of the operating lease rental charge was $100,000in 2018 and $50,000 in 2017. Capitalized interest totaled $30,000in 2018 and $20,000 in 2017.
Required:
a. | Based on the above data for both years, compute: |
| 1. | times interest earned |
| 2. | debt ratio |
| 3. | debt/equity ratio |
| |
b. | Comment on the firm's long-term borrowing ability based on theanalysis. |
| | |
