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Unformatted text preview: Both long-term and short-term debt have experienced substantial growth. Specifically, debt/equity (II) shows that creditors have lent $1.46 for every $1.00 of shareholders' equity. The higher this ratio, the greater the risk to the lender because shareholders' equity acts as a cushion when operating losses occur. In addition, the times-interest-earned ratio has dropped dramatically, indicating the decreasing likelihood that long-term lenders will receive their interest payments when due. The operating cash flow to total debt ratio has also deteriorated over the period and by 2008 it would take 6.2 years for the operating cash flow to pay off the total debt as opposed to 1.7 years in 2006. The bank should not advance any monies at this time due to the substantial risks involved....
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This note was uploaded on 12/21/2010 for the course MGT mgt201 taught by Professor Uppal during the Spring '09 term at University of Toronto- Toronto.
- Spring '09