Tamarack Outfitters at 31 December 2025 (CAD thousands): total liabilities 1,800; total equity 2,200; current assets 1,600; current liabilities 700; EBIT 720; interest expense 80. The auditors require a 300 write-down of inventory to net realisable value, charged to cost of goods sold; ignore the tax effect. Recompute debt-to-equity, the current ratio and times interest earned after the write-down, each to two decimals.
Tamarack Outfitters at 31 December 2025 (CAD thousands): total liabilities 1,800; total equity 2,200; current assets 1,600; current liabilities 700; EBIT 720; interest expense 80. The auditors require a 300 write-down of inventory to net realisable value, charged to cost of goods sold; ignore the tax effect. Recompute debt-to-equity, the current ratio and times interest earned after the write-down, each to two decimals.
Answer
Debt-to-equity → 0.95 · Current ratio → 1.86 · Times interest earned → 5.25
Cells - Debt-to-equity · ±0.01 - Current ratio · ±0.01 - Times interest earned · ±0.01 Equity 2,200 − 300 = 1,900 → D/E 1,800 ÷ 1,900 = 0.947. Current assets 1,600 − 300 = 1,300 → current ratio 1,300 ÷ 700 = 1.857. EBIT 720 − 300 = 420 → TIE 420 ÷ 80 = 5.25. Liabilities and interest are untouched. Against covenants of ≤ 0.90 / ≥ 1.50 / ≥ 4.0, debt-to-equity is breached.
Lyryx IFA Vol 2 §13.6; Lyryx IFA Vol 1 §7.5; Bigel §5.8