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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:

  1. 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.

  1. What limitations are there to conducting the analysis in part (a) above?

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