Hasbro Mattel
Current liabilities $ 718,801 $ 1,350,282
Long-term debt 1,397,681 950,000
Deferred liabilities 361,324 488,867
Total liabilities $2,477,806 $ 2,789,149
Shareholders’ equity:
Common stock $ 104,847 $ 441,369
Additional paid in capital 625,961 1,706,461
Retained earnings 2,978,317 2,720,645
Accumulated other comprehensive loss and other equity items 8,149 (359,199)
Treasury stock, at cost (2,101,854) (1,880,692)
Total stockholders’ equity $1,615,420 $ 2,628,584
Total liabilities and stockholders’ equity $4,093,226 $ 5,417,733
The income from operations and interest expense from the income statement for each company were as follows (in thousands):
Hasbro Mattel
Income from operations $397,752 $684,863
Interest expense 82,112 64,839
a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.
b. Determine the number of times interest charges are earned for both companies. Round to one decimal place.
c. Interpret the ratio differences between the two companies.
Answer:
a. Ratio of Liabilities to Stockholders’ Equity = Total Liabilities
Total Stockholders’ Equity
Hasbro: $2,477,806
$1,615,420 = 1.5
Mattel, Inc.: $2,789,149
$2,628,584 = 1.1
b. Number of Times
=
Interest Charges Are Earned
Income Before Income Tax + Interest Expense
Interest Expense
Hasbro:
Mattel, Inc.:
$397,752 + $82,112
$82,112
$684,863 + $64,839
$64,839
= 5.8
= 11.6
c. Both companies carry a moderate proportion of debt to the stockholders’ equity, with Hasbro carrying slightly more debt than Mattel (1.5 and 1.1 times stockholders’ equity). Therefore, the companies’ debt as a percent of stockholders’ equity is similar. Both companies also have very strong interest coverage; however, Mattel’s ratio is stronger than Hasbro’s. Together, these ratios indicate that both companies provide creditors with a margin of safety, and that earnings appear more than enough to make interest payments.