Mr. Parks has asked you to advise him on the long-term debt-paying ability of the Arodex Company. He provides you with the following ratios:
|
2001 |
2000 |
1999 |
|
8.2 |
6.0 |
5.5 |
|
40% |
39% |
40% |
|
80% |
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 the
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?