Financial Reporting and Analysis Q202
0. The following information (in millions) for a company is available:
| 2013 | 2012 | |
| Short-term borrowings | $150 | $152 |
| Current portion of long-term interest bearing debt | 200 | 195 |
| Long-term interest bearing debt | 1,200 | 1,150 |
| Total shareholders’ equity | 2,580 | 2,400 |
| EBIT | 362.5 | 325 |
| Interest payments | 75 | 62 |
| Operating lease payments | 30 | 34 |
What is the most appropriate conclusion an analyst can make about the
solvency of the company? Solvency has:
solvency of the company? Solvency has:
- Option : A
- Explanation : The debt–equity ratio decreased, thereby improving solvency; the fixed charge ratio remained the same. Fixed charge coverage ratio = (EBIT + Lease payments) / (Interest payments + Lease payment) Fixed charge coverage ratio 2013 = (362.5 + 30) / (75 + 30) = 3.74 Fixed charge coverage ratio 2012 = (325 + 34) / (62 + 34) = 3.74 Debt-to-equity ratio 2013 = (Total debt) / Equity Debt-to-equity ratio 2013 = (150 + 200 + 1200) / 2580 = 60.0% Debt-to-equity ratio 2012 = (152 + 195 + 1150) / 2400 = 62.4%.
