PART F: Analysis of Liabilities

The following information has been selected from J&J$\text{'}$s financial statements:

$\backslash$table$[[$BALANCE SHEET$],[$Current Assets:,$],[$Cash$,$$$500,000],[$Accounts Receivable,$800,000],[$Equity Investments,$200,000],[\backslash$table$[[$Inventory$]],2,000,000],[$TOTAL CURRENT ASSETS,$3,500,000],[$TOTAL ASSETS,$13,000,000],[$Current Liabilities:,:$\text{'}],[$Accounts Payable,$1,000,000],[$Short$-$term Notes Payable,$500,000],[$Current Portion of Long$-$term Debt,$300,000],[$TOTAL CURRENT LIABILITIES:,$1,800,000],[$Non$-$Current Liabilities:,$],[$Bonds Payable,$6,000,000],[$Mortgages Payable,$500,000],[$TOTAL NON$-$CURRENT LIABILITIES:,$6,500,000],[,$STATEMENT$],[$EBIT$,$$$400,000],[$Interest Expense,$50,000]]$

Instructions:

a$)$ Calculate the ratios that would matter to a short$-$term creditor: Working capital, current ratio, and the acid ratio.

b$)$ Analyze the company's short$-$term debt paying ability based on the numbers you calculated in $($a$).$ Identify other sources of information that would make your analysis even better.

c$)$ Calculate the ratios that would matter to a long$-$term creditor: Debt ratio, interest coverage ratio.

d$)$ Analyze the company's long$-$term solvency based on the numbers you calculated in $($c$).$ Identify other sources of information that would make your analysis even better.

e$)$ The CEO of J&J$\text{'}$s says that debt is bad and is considering buying back and getting rid of all the company's debt. Are they correct in their thinking? Why or why not?