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The following information has been extracted from the financial statements (for the financial years of 2021 and 2020) of Paris Ltd, a well-established retail business.
The following information has been extracted from the financial statements (for the financial years of 2021 and 2020) of Paris Ltd, a well-established retail business.
2021 | 2020 | |||||
Profit before Income Tax | $570,000 | $700,000 | ||||
Interest Expense | $96,000 | $70,000 | ||||
Tax Expense | $140,000 | $178,000 | ||||
Total Assets | $5,600,000 | $5,200,000 | ||||
Total Equity | $2,100,000 | $2,200,000 | ||||
Total current liabilities | $2,110,000 | $1,700,000 | ||||
Total non-current (interest bearing) Liabilities | $1,390,000 | $1,300,000 |
REQUIRED:
- Determine the Debt to total asset ratio and Times interest earned ratio of Paris Ltd for both the years and provide an assessment on the long-term financial structure of the business on the basis of those ratios.
- What limitations are there to conducting the analysis in part (a) above?
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