Chapter 10 Liabilities 489- Determine the total liabilities to total assets ratio for each company. Round to two decimal
places. - Determine the number of times interest charges are earned for each company.
- Interpret your results.
The ratio of total liabilities to total assets for the 12 largest bank holding companies for a recent
year are shown in the table below. The average ratio of total liabilities to total assets for the
group is 91.1%. This means that the average debt held by these banks is over 91% of their total
assets, which is much more than in any other industry.The interest expense, income tax expense, and net income (before unusual items) were as
follows for both companies:Lockheed Martin Northrop Grumman
2004 2004
Interest expense $ 425 $ 431
Income tax expense 398 522
Net income from continuing operations 1,266 1,093Case 10-7
Ratio of total liabilities to total
assets—banking industry
Lockheed Martin Northrop Grumman
12/31/04 12/31/04
Liabilities and stockholders’ equity:
Total current liabilities $ 8,566 $ 6,223
Long-term debt 5,104 5,116
Post-retirement benefit liabilities 2,896 3,736
Deferred income taxes 0 506
Other non-current liabilities 1,967 1,080
Total stockholders’ equity 7,021 16,700
Total liabilities and stockholders’ equity $25,554 $33,361Bank Holding Company Ratio of Total Liabilities to Total Assets
Citigroup Inc. 0.925
J.P. Morgan Chase 0.908
Bank of America Corporation 0.910
Wachovia Corporation 0.898
Wells Fargo & Company 0.911
Taunus Corporation 0.987
U.S. Bancorp 0.900
Suntrust Banks, Inc. 0.896
National City Corporation 0.906
Citizens Financial Group, Inc. 0.848
ABN AMRO North America Holding Company 0.939
Countrywide Financial Corporation 0.906Average 0.911Why are these ratios so large?BUSINESS ACTIVITIES AND RESPONSIBILITY ISSUES
One reason that PepsiCo, Inc., purchased Quaker Oatsin 2001 was to acquire the rights to its
sports drink, Gatorade. However, Gatorade is under increasing pressure from its competitors,
includingCoca-Cola’s Powerade. As a result, PepsiCo is initiating an aggressive advertising
campaign to promote and grow sales of Gatorade.Activity 10-1
Business emphasis