Analyzing Liabilities Using financial statement data published by Farnsworth Company, an investment analyst computed the following ratios:

Answer each of the following and explain your answer:

a. Is Farnsworth Company relying more heavily or less heavily on debt financing in 2000 than it had previously?

b. From the viewpoint of its bondholders, has Farnsworth’s ability to make the interest payments on its debt increased or decreased?

c. Should Farnsworth’s bondholders be concerned about the company’s ability to continue making its interest payments if its operating earnings decline?

d. Have the common shareholders benefited from the apparent increase in debt?

Transcribed Image Text:

Debt-to-equity ratio 2000 1.39 1999 1998 1997 1.43 1.03 .95 Times interest earned Earnings per share 18.20 16.90 27.60 30.40 $8.95 $8.60 $6.30 $5.95