$3$e$)$ Does it appear that the firm's need for outside capital in $1995$ was $"$to be expected," or does it appear that this need for cash was the result of suspect managerial practices? Use information in the case and any other financial statistics you think are appropriate to answer this question.

Answer: yes it was to be expected.

$10$a$)$ Explain why the banker thought Helping Hand's current ratio was "impressive," while Stafford was decidedly unimpressed.

Answer:

$10$b$)$ Consider the reactions of two individuals to the rising average collection period of their firm. The sales manager is quite pleased at the increase while the credit manager is quite concerned. Explain these different reactions.

Vincent does not believe that Helping Hand is overleveraged at present. Part of her argument involves calculation of the firm's debt, times interest earned $($TIE$)$ and fixed charge coverage $($FCC$)$ ratios.

$($a$)$ The debt ratio was $34$ percent in $1995,$ well below the industry average of $57$ percent shown in Exhibit $4,$ In addition, Vincent believes that the firm's debt ratio would be even lower if she adjusted for the fact that interest rates have risen since the long$-$term debt recorded on the balance sheet was incurred.

Explain why a firm's debt ratio$-$other relevant factors the same$-$will be overstated during a period of rising interest rates if it is calculated from information on the balance sheet. $($Hint: consider the difference between book value and market value.$)$

$($b$)$ What are some other balance sheet items where a divergence may well exist between book and market value?

$($c$)$ Vincent will compute the TIE as EBIT$/$INT$.$ She doesn't like this ratio as a measure of the firm's ability to meet its financial expenses since it ignores contractual obligations such as leasing payments $($LP$)$ and debt due $($DD$).$ She prefers to compute the fixed charge coverage as follows.