Question Details

The income statement for Ray Company for the year ended 




1.	Smith Inc. is a wholesaler of snow skiing gear. During 2014, Smith expanded its retail business by adding over 50 shops. The following information is obtained from the comparative financial statements included in the company's 2014 annual report.

	Dec. 31, 2014	Dec. 31, 2013 
Total liabilities	$26,000,000	$18,000,000 
Total stockholders' equity	34,000,000	38,000,000 
		
FOR THE FISCAL YEARS ENDED	Dec. 31
	2014	2013 
Depreciation expense	$  2,000,000	$  6,000,000 
Interest expense 	 3,400,000	3,200,000 
Income tax expense	12,600,000	18,100,000 
Net income	 6,000,000	15,000,000 
Net cash provided by operations 	41,000,000	(400,000)
Total dividends paid	 2,000,000	12,000,000 
Cash used to purchase plant assets 	32,000,000	18,000,000 
Payments on long-term debt	1,600,000	1,800,000 

1.	Using the information provided above, compute the following for 2014 and 2013:
	A.	Debt-to-equity ratio (at each year-end)
	B.	Times-interest-earned ratio
	
2.	Briefly explain the implications of your findings with respect to these two leverage ratios.


2.	The income statement for Ray Company for the year ended December 31, 2013, appears below.

Sales	$610,000  
Cost of goods sold	  380,000  
Gross margin	230,000  
Expenses	  170,000*
Net income	$  60,000  

*Includes $30,000 of interest expense and $18,000 of income tax expense.

Additional information:
1.	Common stock outstanding during 2013 totaled 45,000 shares.
2.	The market price of Ray's stock was $15 at the end of 2013.
3.	Cash dividends of $30,000 were paid, $6,000 of which were paid to preferred stockholders.

Required: Compute the following ratios for 2013:
A.	earnings per share.
B.	price-earnings.
C.	times-interest-earned ratio.



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