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Mr. Parks has asked you to advise him on the long-term debt-paying ability of Arodex Company. He provides you with the following ratios: 2011 2010

Mr. Parks has asked you to advise him on the long-term debt-paying ability of Arodex Company. He provides you with the following ratios:

2011 2010 2009

Times interest earned 8.2 6.0 5.5

Debt ratio 40% 39% 40%

Debt to tangible net worth 80% 81% 81%

a. Give the implications and the limitations of each item separately and then the collective influence that could be drawn from them about Arodex Companys long-term debt position.

b. What warning should you offer Mr. Parks about the limitations of ratio analysis for the purpose stated here?

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