Use the financial statements of Allstott, Inc., in Short Exercises 13-6 and 13-7.
1. Compute the company’s debt ratio at December 31, 2012.
2. Compute the company’s times-interest-earned ratio for 2012. 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 Allstott’s ability to pay liabilities and interest expense strong or weak? Comment on the value of each ratio computed for questions 1 and 2.