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Debt Analysis with Debt Ratios

This is one type of problem that we will need to know how to do for the final. I can't find a good example(that is easy to understand) and need to know exactly how to do this before the final.

Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry averages and Creek's recent financial statements (on the facing page), evaluate and recommend appropriate action on the loan request.

See attachment.


Solution Preview

The problem requires that you prepare a written response that evaluates and reccomends an action on the loan request based on ratios. Since you are given the industry ratios, the first step is to find the ratios for Creek Enterprises. Next step is to compare it with industry ratios and find out what that spells for Creek.


Debt ratio for Creek: The formula is total liabilities/ total assets. For creek it is 16,520,000/50,000,000 = 0.33
Debt ratio is a ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of ...

Solution Summary

Contains formulas and detailed explanations of debt ratio, Times Interest Earned and Fixed Payment(charge) Coverage