Use the financial statements of AJ Cardenas, Inc., in S13-6 and S13-7.

In S13-6, Use the AJ Cardenas, Inc., balance sheet data on the shown below.

1. Compute the company’s debt ratio at December 31, 2014.

2. Compute the company’s times-interest-earned ratio for 2014. For operating income, use income before both interest expense and income taxes. You can simply add interest expense back to income before taxes.

3. Is AJ Cardenas’s ability to pay liabilities and interest expense strong or weak? Comment on the value of each ratio computed for questions 1 and 2.

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AJ Cardenas, Inc. Balance Sheets (Adapted) December 31, 2014 and 2013 Increase (Decrease) Percentage (Dollar amounts in millions) Assets 2014 2013 Amount Current assets: $ 340 (64) (20) $ 1,240 Cash and cash equivalents Short-term investments Receivables, net Inventories Prepaid expenses and other assets Total current assets Property, plant, and equipment, net Intangible assets Other assets Total assets Liabilities and Stockholders' Equity Current liabilities: $ 900 70 37.8% (91.4) (8.0) 250 230 96 243 81 15 18.5 (120) 151 235 363 (33.1) 9.1 1,815 3,611 1,011 828 $ 7,265 1,664 3,376 878 7.0 133 15.1 14.7 722 $ 6,640 106 $ 625 9.4% $ 100 (22) $ 1,000 $ 900 Accounts payable Income tax payable Short-term debt Other Total current liabilities Long-term debt Other liabilities Total liabilities Stockholders' equity: Common stock Retained earnings Accumulated other comprehensive (loss) Total stockholders' equity Total liabilities and stockholders' equity 11.1% (36.1) 39 61 118 111 6.3 (3) 82 (4.1) 7.2 70 1,227 3,500 1,117 5,844 73 1,145 2,944 1,036 5,125 556 18.9 7.8 81 14.0 719 1,689 (176) 1,515 $ 6,640 (116) 22 (6.9) (12.5) (6.2) 1,573 (154) 1,421 $ 7,265 (94) $ 625 9.4%