The Allen Company and the Barker Company are competitors in the same industry.

Selected financial data from their 2001 statements are shown below.

Balance Sheet December 31, 2001 Allen Barker Company Company Cash $ 10,000 $ 35,000 Accounts receivable 45,000 120,000 Inventory 70,000 190,000 Investments 40,000 100,000 Intangibles 11,000 20,000 Property, plant, and equipment 180,000 520,000 Total assets $356,000 $985,000 Accounts payable $ 60,000 $165,000 Bonds payable 100,000 410,000 Preferred stock, $1 par 50,000 30,000 Common Stock, $10 par 100,000 280,000 Retained earnings 46,000 100,000 Total liabilities and capital $356,000 $985,000 Income Statement For the Year Ended December 31, 2001 Allen Company Barker Company Sales $1,050,000 $2,800,000 Cost of goods sold 725,000 2,050,000 Selling and administrative expenses 230,000 580,000 Interest expense 10,000 32,000 Income taxes 42,000 65,000 Net income $ 43,000 $ 73,000 Industry Averages:

Times interest earned 7.2 times Debt ratio 40.3%

Debt/equity 66.6%

Debt to tangible net worth 72.7%

Required

a. Compute the following ratios for each company:

1. Times interest earned 3. Debt/equity ratio 2. Debt ratio 4. Debt to tangible net worth

b. Is Barker Company in a position to take on additional long-term debt?

Explain.

c. Which company has the better long-term debt position? Explain.