Question

E10-10 Calculating and Interpreting the Debt-to-Assets Ratio and Times Interest Earned Ratio [LO 10-5] At May 31, 2016, FedEx Corporation reported the following amounts (in millions) in its financial statements: 2016 2015 Total Assets $ 46,000 $ 36,500 Total Liabilities 32,200 21,500 Interest Expense 340 240 Income Tax Expense 920 580 Net Income 1,820 1,050 Required: Compute the debt-to-assets ratio and times interest earned ratio for 2016 and 2015. (Round your answers to 2 decimal places.)

Answer 1

Answer:

Debt to asset ratio, 0.58 and 0.7

Times interest earned, 7.79 and 9.05

Explanation:

The Debt to Asset ratio is an indicator of company's financial leverage. The ratio is calculated by dividing total liabilities by total assets of the company.

Total liabilities / Total Assets

2015 - $21,500 / $36,500 = 0.58 or 58%

2016 - $32,200 / $46,000 = 0.7 or 70%

Times Interest Earned ratio determines company's ability to meet its debt obligation from its current earnings. The ratio is calculated by dividing income before interest and tax by the interest expense.

Profit before interest and tax / Interest Expense

2015 - $1,870 / $240 = 7.79

2016 - $3,080 / $340 = 9.05