Aristocrats Art Reported the Following Trend Analysis to Its Bank

Aristocrats Art reported the following trend analysis to its bank as an attachment to a loan application. $\begin{array}{lll}&\underline{2012}&\underline{2011}&\underline{2010}\\ \text {Fixed Charge Ratio}&4.00 & 2.50 & 1.54 \\ \text {Times Interest Earned Ratio}&4.94 & 3.17 & 2.08 \\\text {Debt Ratio}&0.47 & 0.51 & 0.56 \\ \text {Debt to Tangible Net Worth Ratio}&0.91 & 1.06 & 1.36\end{array}$
You have been asked to evaluate the long-term borrowing capacity.You know that a rule of thumb for this industry for the debt/ equity ratio is 1 to 1.
Required:
a.Compute the debt/equity ratio for 2012,2011,and 2010,using the debt ratio as a guide.
b.Comment on the long-term borrowing ability of this firm.

Correct Answer:

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a.If total liabilities are .47 of total ...

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