Response to the following problem:
Mr. Parks has asked you to advise him on the long-term debt-paying ability of Arodex Company. He provides you with the following ratios:
|
|
2011
|
2010
|
2009
|
|
Times interest earned
|
8.2
|
6.0
|
5.3
|
|
Debt ratio
|
49%
|
39%
|
40%
|
|
Debt to tangible net worth
|
SO%
|
81 %
|
81%
|
Required:
a. Give the implications and the limitations of each item separately and then the collective influence that could be drawn from them about Arodex Company's long-term debt position.
b. What warnings should you offer Mr. Parks about the limitations of ratio analysis for the purpose stated here?