Arrowbell Company is a growing company. Two years ago, it decided to expand in order to increase its production capacity. The company anticipates that the expansion program can be completed in another two years. Financial information for Arrowbell is as follows.
Required
a. Comment on the short-term debt position, including computations of current ratio, acid-test ratio, cash ratio, and operating cash flow/current maturities of long-term debt and current notes payable.
b. If you were a supplier to this company, what would you be concerned about?
c. Comment on the long-term debt position, including computations of the debt ratio, debt/equity, debt to tangible net worth, and operating cash flow/total debt. Review the statement of operating cash flows.
d. If you were a banker, what would you be concerned about if this company approached you for a long-term loan to continue its expansion program?
e. What should management consider doing at this point with regard to the company’s expansion program?