Times Interest earned 8.2 6.0 5.5 Debt ratio 40% 39% 40% Debt to tangible net worth 80% 81% 81% Required: 1. 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 2. What warning should you offer Mr. Parks about the limitations of ratio analysis for the purpose stated here? Solution: Times interest earned has been increased. That means net profit has been increased which is good for the long term debt position of the company. Company becoming strong to pay interest charges The bebt ratio has been not been change drastically which mean company is maintaining an appropriate debt to equity ratio. The above point is also supported by the results of debt to tangible net worth ratio.
Question # 4: Assume that you have several thousand dollars to invest in the stock market. Given the people will always have to eat. You have decided to explore the possibility of investing in Wendy’s and McDonald’s your analysis of each company’s financial statements reveals that both have negative working capital and both have current and quick ratios of less than 1 to 1. Required: Based on your findings, should you be concerned about the short term liquidity of these two companies? Explain Soultion:
- Fall '19
- Financial Ratio, Arodex Company