ratio analysis exercises and problems

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Option 1: Ratio Analysis Exercises and Problems

Use the net income statement for Summer Peebles, Inc., below, to do the following assigned problems.

  1. Compute the following earnings coverage ratios:
    1. Earnings to fixed charges.
    2. Cash flow to fixed charges.
    3. Earnings coverage of preferred dividends.
  2. Analyze and interpret the earnings coverage ratios in (A).
Summer Peebles, Inc. Consolidated Income Statement ($ thousands)
Year Ending December 31, 2015



Undistributed Income of Less Than 50%-Owned Affiliates


Total Revenue


Cost of Goods Sold


Selling and Administrative Expenses




Rental Expense


Share of Minority Interest in Consolidated Income


Interest Expense



Income Before Taxes


Income Taxes






Net Income


Less Dividends

Common Stock


Preferred Stock



Earnings Retained for the Year


Additional Information:

  1. The following changes occurred in current assets and current liabilities for 2015:
    Current Accounts Increase (Decrease) Current Accounts Increase (Decrease)
    Accounts Receivable $900.00 Notes Payable to Bank -$200.00
    Inventories -$800.00 Accounts Payable $700.00
    Dividend Payable -$100.00
  2. The effective tax rate is 40%.
  3. Shares of minority interests in consolidated income do not have fixed charges.
  4. Interest expenses include:
    Interest Incurred (Except Items Below) $600.00
    Amortization of Bond Premium -$300.00
    Interest on Capitalized Leases $140.00
    Interest Incurred $440.00
    Less Interest Capitalized -$40.00
    Interest Expense $400.00
  5. Amortization of previously capitalized interest (included in depreciation) is $60.
  6. Interest implicit in operating lease rental payment (included in rental expense) is $120.

Your submission should:


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