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AGF FOODS COMPANY IS A LARGE, PRIMARILY DOMESTIC, CONSUMER FOODS COMPANY INVOLVED

AGF FOODS COMPANY IS A LARGE, PRIMARILY DOMESTIC, CONSUMER FOODS COMPANY INVOLVED

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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's The 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

            2016

          2015

Net sales

$6,440

$5,800

Cost of goods sold

(3,667)

(3,389)

Gross profit

2,773

2,411

Operating expenses

(1,916)

(1,629)

 
Operating income

857

782

Interest expense

(54)

(53)

Income from operations before tax

803

729

Income taxes

(316)

(287)

Net income

$ 487

$ 442

Comparative Balance Sheets

Assets

Total current assets

$1,879

$1,490

Property, Plant, and Equipment (net)

2,592

2,291

Intangibles (net)

800

843

Other assets

74

60

Total assets

$5,345

$4,684

Liabilities and Shareholders' Equity

Total current liabilities

$1,473

$ 941

Long-term debt

534

728

Deferred income taxes

407

344

Total liabilities

2,414

2,013

Shareholders' equity:

Common stock

180

180

Additional paid-in capital

21

63

Retained earnings

2,730

2,428

Total shareholders' equity

2,931

2,671

Total liabilities and shareholders' equity

$5,345

$4,684

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.
Required:
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?


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