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?