P. 7-6

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%

Required

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

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

Address the "Required" questions in your main response with a minimum of one external reference.