Reference no: EM132569735

Solvency ratios assess the long-term financial viability of a business i.e. its ability to pay off its long-term obligations such as bank loans, bonds payable, etc. Information about solvency is critical for banks, employees, owners, bond holders, institutional investors, government, etc.

Jones Petro Company reports the following consolidated statement of income:

Operating revenues $2,989

Costs and expenses:

Cost of rentals and royalties 543

Cost of sales 314

Selling, service, administrative, and general

Expense 1,424

Total costs and expenses (2,281)

Operating income 708

Other income 27

Other deductions (interest) 60

Income before income taxes 675

Income taxes 309

Income before outside shareholders' interests 366

Outside shareholders' interests 66

Net income $300

Note: Depreciation expense totals $200; operating lease payments total $150; and preferred dividends total $50. Assume that one-third of operating lease payments is for interest.

Required: You are required to:

Question a. Compute the times interest earned.

Question b. Compute the fixed charge coverage ratio.