AGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution, and sale of a variety of food products. Industry averages are derived from Troy'sThe Almanac of Business and Industrial Financial Ratios. Following are the 2016 and 2015 comparative income statements and balance sheets for AGF. (The financial data we use are from actual financial statements of a well-known corporation, but the company name is fictitious and the numbers and dates have been modified slightly to disguise the company's identity.)
AGF FOODS COMPANY
Years Ended December 31, 2016 and 2015
($ in millions)
Comparative Income Statements
Cost of goods sold
Income from operations before tax
Comparative Balance Sheets
Total current assets
Property, Plant, and Equipment (net)
Liabilities and Shareholders' Equity
Total current liabilities
Deferred income taxes
Additional paid-in capital
Total shareholders' equity
Total liabilities and shareholders' equity
Long-term solvency refers to a company's ability to pay its long-term obligations. Financing ratios provide investors and creditors with an indication of this element of risk.
Calculate the debt to equity ratio for AGF for 2016. The average ratio for the stocks listed on the New York Stock Exchange in a comparable tim period was 1.0. What information does your calculation provide an investor?
Is AGF experiencing favorable or unfavorable financial leverage?
Calculate AGF's times interest earned ratio for 2016. The coverage for the stocks listed on the New York Stock Exchange in a comparable time period was 5.1. What does your calculation indicate about AGF's risk?