Hussain, Inc.'s income statement and other financial information for the current year is presented below.Hussain, Inc.Income StatementFor the year ended December 31Sales revenue $159,131Cost of goods sold 64,360Gross profit 94,771Selling, general, and administrative expenses 11,385Operating income 83,386Interest expense 2,847Income before taxes 80,539Income tax expense 3,414Net income$ 77,125Balance sheet information:Current assets$250,000Noncurrent assets 500,000Current liabilities50,000Long-term debt100,000Required:Part a. Perform vertical analysis of the income statement. (Round to the nearest whole percentage.)Part b. Calculate the debt-to-assets ratio. (Round to two decimal places.)Part c. Calculate the times interest earned ratio. (Round to two decimal places.)Part
d. Evaluate the company's solvency.
What will be an ideal response?
Part a
| Hussain, Inc. |
| Income Statement |
| For the year ended December 31 |
| Amount | Percent |
| Sales revenue | $159,131 | 100 | .0 |
| Cost of goods sold | 64,360 | 40 | .0 |
| Gross profit | 94,771 | 60 | .0 |
| Selling, general, and administrative expenses | 11,385 | 7 | .0 |
| Operating income | 83,386 | 52 | .0 |
| Interest expense | 2,847 | 2 | .0 |
| Income before taxes | 80,539 | 51 | .0 |
| Income tax expense | 3,414 | 2 | .0 |
| Net income | $ 77,125 | 48 | .0 |
Part b
Debt to Assets = Total liabilities ÷ Total assets
= $150,000 ÷ $750,000 = 0.20
Part c
Times interest earned = (Net income + Interest expense + Income tax) ÷ Interest expense
= ($77,125 + $2,847 + $3,414) = $83,386 ÷ $2,847 = 29.29
Part d
Judging from the analysis above, Hussain, Inc. appears to be solvent. It has relatively little debt with a debt-to-assets ratio of 20%, and it is easily able to cover interest payments with a times interest earned ratio of 29.29.
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