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Question - Mr. Joseph has identified five different companies in which he is interested in investing, however, he has concerns over the economy and wants to invest in companies with the lowest debt exposure. The following is a list of data for the investments:
COMPANY
TOTAL ASSETS
TOTAL LIABILITIES
NET INCOME
A
$10,000,000
$1,000,000
$200,000
B
$20,000,000
$3,000,000
C
$6,000,000
$4,000,000
$250,000
D
$15,000,000
$1,600,000
E
$30,000,000
$22,000,000
Based on the data provided:
1. Calculate the debt-to-asset ratio and rank the investments base on least risky to most risky.
2. Explain the logic of your analysis.
3. Briefly explain the "times earned interest ratio" and how it would be used in your analysis.
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