Lintlaw Ltd. (Lintlaw) recently released its December 31, 2015 financial statements. In a press release announcing the results, Lintlaw’s management proudly stated that the company had maintained its debt load well below the industry average of 2.5 to 1. Lintlaw’s summarized balance sheet for the years ended December 31, 2014 and 2015, along with extracts from the notes to the financial statements are provided below.

Required:

Assess Lintlaw’s debt position. Do you think management should be as proud of its financial situation as it is? Explain your thinking.

Extracts from Lintlaw’s financial statements:
* The company leases most of its production equipment. The leases are generally for four to five years and all are classified as operating leases. Minimum annual lease payments for the next five years are

¢ The company has long-term binding commitments to purchase supplies from a Korean company. The commitments require a minimum purchase of \($500,000\) for the next three years.
* On January 15, 2016, the company signed an agreement to borrow \($750,000\) from a local bank. The annual interest rate on the loan will be 6 percent for a term of three years. The loan comes into effect on February 19, 2016.

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Cash Accounts receivable Inventory Other Lintlaw Ltd. Balance Sheets for the Years Ended December 31 (in thousands of dollars) Property, plant, and equipment (net) Intangible assets (including goodwill) Total assets 2015 2014 2015 2014 $175 $ 138 Accounts payable and accrued liabilities $ 910 $ 850 375 360 Current portion of long-term debt 100 100 650 605 1,010 950 175 155 Long-term debt 600 700 1,375 1,258 Other non-current liabilities 125 138 1,735 1,788 985 1,005 875 925 Capital stock Retained earnings 900 900 600 500 1,500 1,400 $3,235 $3,188 Total liabilities and shareholders' equity $3,235 $3,188