Ability to pay Long Term debt

Question 1

Debt Ratio

Answer 1

-LT Debt
M. proportion of assets financed with debt

= total liabilities / total assets
= 57% - 67% => PERFECT

> 67% => high financial risk

Question 2

Debt to Equity Ratio

Answer 2

-LT Debt
M. financial leverage

= total liabilities / total equity

> 1 => high financial risk

Question 3

Times-Interest-Earned Ratio

Answer 3

-LT Debt
M. ability to pay interest expense

= (net income + income tax expense + interest expense) / interest expense

high ratio = good