Patriots Art, Inc. reported the following trend analysis to its bank as an attachment to a...

 

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Patriots Art, Inc. reported the following trend analysis to its bank as an attachment to a loan application. Fixed Charge Ratio Times Interest Earned Ratio Debt Ratio Debt to Tangible Net Worth Ratio 2006 4.00 4.94 0.47 0.91 2005 2.50 3.17 0.51 1.06 2004 1.54 2.08 0.56 1.36 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 2006, 2005, and 2004, using the debt ratio as a guide. b. Comment on the long-term borrowing ability of this firm. Patriots Art, Inc. reported the following trend analysis to its bank as an attachment to a loan application. Fixed Charge Ratio Times Interest Earned Ratio Debt Ratio Debt to Tangible Net Worth Ratio 2006 4.00 4.94 0.47 0.91 2005 2.50 3.17 0.51 1.06 2004 1.54 2.08 0.56 1.36 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 2006, 2005, and 2004, using the debt ratio as a guide. b. Comment on the long-term borrowing ability of this firm.

Answer rating: 100% (QA)

a To compute the debtequity ratio for each year we can use the debt ratio as a guide Debt Ratio Tota... View the full answer