Financial Accounting: Liabilities & Equities
Question 1 (25 marks)
Computer question
All the information to do this problem is in the data folder. The condensed balance sheet
figures for Forest Products Inc. for the years ending December 31, 20X8, 20X7, 20X6, and
20X5, have been pre-entered in the worksheet file.
Required
a. (7 marks)
Perform a vertical percentage analysis on the comparative condensed balance sheets.
Round to the nearest percent.
Note:
Your printed solutions may not add to 100% due to rounding errors. Do not adjust rounded numbers.
b. (7 marks)
Perform a horizontal percentage analysis on the comparative condensed balance sheets.
Round to the nearest percent.
Note:
For the two balance sheet items that did not exist in 20X5, use 20X6 as the base year (assets and liabilities
of discontinued operations). For all other items, 20X5 is the base year.
c. (8 marks)
Create pie charts for the net assets of 20X8 and 20X7, emphasizing working capital in
each graph by dragging out this section of the pie chart.
d. (3 marks)
What conclusions would you draw from the data? That is, explain any trends that you
see.
Procedure
1. Open the file FA3L9Q1. This file contains three worksheets, L9Q1, PIE20X8, and
PIE20X7. The last two worksheets are blank and have been set up for you to place the
pie charts.
2. Study the layout of the worksheet. In rows 5 to 23, columns B, D, F, and H contain the
condensed balance sheet figures to be used in the problem. Columns C, E, G, and I are
set up for you to perform a vertical analysis for 20X8 to 20X5. Rows 27 to 43 are set
up for you to perform a horizontal analysis for years 20X8 to 20X6. Cells A46 to B49
and A52 to B55 contain labels and amounts for the net asset accounts that you will use
to construct your pie charts.
Part (a)
3. In rows 10 to 23, enter in columns C, E, G, and I the necessary formulas to present a
vertical analysis for the balance sheets for years 20X8 to 20X5.
Part (b)
4. Enter in columns C, E, G, and I the formulas to calculate the percentages in order to
present a horizontal analysis. In rows 30 to 43, the earliest year (20X5) should be set as
the base year (that is, equal to 100%) and all amounts from other years as a percentage
of 20X5. For the two balance sheet amounts that did not exist in 20X5, use 20X6 as the
base year.
5. Save your completed worksheet. Copy and paste into a word-processing document the
balance sheet and analysis in the range A1 to I44.
6. Display the formulas for the vertical and horizontal analysis. Copy and paste the
formulas in row 10 (cells A10 to I10) and row 30 (cells A30 to I30) only into your
word-processing document. Close the Excel file without saving. Reopen it before
proceeding.
Part (c)
The range A46 to B49 has been set up for the pie chart for 20X8. The range A52 to B55
has been set up for the pie chart for 20X7. Use the following instructions to create two pie
charts, one for the 20X8 net assets and one for the 20X7 net assets.
7. Select the range A46 to B49. Click the ChartWizard on the toolbar.
8. Click Pie and select the first chart sub-type (top left). Click next and follow the steps
in the ChartWizard, including a legend and setting an appropriate chart title.
9. In the last step of the ChartWizard, select Place chart as object in PIE20X8.
10. Drag out the slice for working capital to draw attention to it.
11. Repeat steps 7 to 10 for the 20X7 net assets in the range A52 to B55, placing the
chart in the PIE20X7 worksheet.
12. Copy and paste each chart into your word-processing document.
Part (d)
Answer Part (d) in your word-processing document.
Question 2 (26 marks)
Computer question
The information required to do this problem is in the data folder. The annual consolidated
financial statements of Lafarge Canada Inc. for the year 20X7 have been pre-entered on the
worksheet file and are not reproduced here.
Note:
Assume that all sales were on credit, and the cost of sales was €550,000. Cost of sales is included in the
€927,729 total operating expenses. Omit times interest earned, times debt service earned, and the
defensive interval ratios. (Either inadequate information is provided for these ratios, or they are largely
irrelevant for Lafarge.) Round to the same number of decimal points as the industry data. Use average
balances where appropriate.
Required
a. (6 marks)
Using a worksheet, compute the ratios that measure efficiency for 20X7.
b. (5 marks)
Compute the ratios that measure solvency for 20X7.
c. (3 marks)
Compute the ratios that measure liquidity for 20X7.
d. (12 marks)
Provide a commentary on the ratios calculated in parts (a) to (c). Refer to the assumed
industry data on your computer file as a standard of reference.
Procedure
1. Open the file FA3L9Q2.
2. Study the layout of the worksheet. Rows 4 to 63 contain the consolidated balance sheet
and income statement for 20X7with comparative figures for 20X6. Rows 65 to 80 are
set up to calculate the efficiency, solvency, and liquidity ratios necessary to satisfy
parts (a) to (c) of the problem.
3. In rows 68 to 80 of column B, enter the appropriate formulas to calculate the financial
ratios for 20X7. Use averages where appropriate.
4. Save your completed worksheet, and copy and paste your ratio analysis in the range
A65 to B80 into a word-processing document.
5. Display the formulas in the range A67 to B80, and copy and paste this range into your
word-processing document. Close up column A so the formulas are large enough to
read.
6. Submit the analysis for requirement (d), done manually in your word-processing
document, with your solution to parts (a) to (c).
Question 3 (24 marks)
Multiple choice (2 marks each)
a. Which of the following ratios best provides an indication of the immediate liquidity
of a company?
1)
2)
3)
4)
Accounts receivable turnover
Acid test ratio
Current ratio
Defensive-interval ratio
b. If inventories increase over a period and the current ratio decreases, which of the
following is true?
1)
2)
3)
4)
The acid test ratio must have declined.
The acid test ratio must have increased.
Inventory turnover must have declined.
Inventory turnover must have increased.
c. If a firm has a current ratio of 0.7 to 1, which of the following transactions would
decrease the ratio?
1)
2)
3)
4)
Borrowed money from the bank for six months.
Bought inventory from a supplier, to be paid for in two months.
Sold a long-term asset for cash.
Paid cash dividend payable (declared at end of previous year).
d. Which one of the following is true?
1)
2)
3)
4)
In vertical analysis of the balance sheet, shareholders’ equity is the base.
Horizontal analysis looks at trends over time.
Analysts should focus on the items with the largest change when reviewing
horizontal analysis.
Financial statement analysis is not reflected in market prices in a semi-strong
financial market.
e. Which one of the following is true?
1)
2)
3)
4)
A higher asset turnover is typically better.
A lower times interest earned is typically better.
A lower accounts receivable turnover ratio is typically better.
A higher age of accounts receivable is typically better.
f. A firm has an inventory turnover of 6. How could this ratio be increased?
1)
2)
3)
4)
Keeping inventory the same and decreasing cost of sales
Doubling average inventory and at the same time doubling the cost of sales
Increasing inventory and decreasing cost of sales
Reducing inventory while cost of sales increases by 20%
g. What conclusion is not consistent with a very high receivable turnover ratio relative
to the industry average?
1)
2)
3)
4)
The firm may have excessively tight credit policies.
The firm manages collections very effectively.
The firm may be different, and thus not comparable, with the industry.
The firm is highly profitable compared to the industry.
h. According to R. M. Skinner, which of the following is a correct description of some
aspects of the traditional historical cost model?
1)
2)
3)
4)
There are specific but arbitrary revenue recognition criteria, typically satisfied
at the point of sale.
Measurement of financial position has been accepted as the primary goal of
financial reporting.
Market value is never used as a measurement attribute in an historical cost
model.
Costs are recognized as expenses on the income statement in order to match.
i. There are many problems associated with the traditional historical cost model. Which
of the following is not a problem with the model?
1)
2)
3)
4)
Revenue recognition point is an arbitrary point in the production/sales
process.
The model does not reflect changes in specific prices and general prices
(inflation).
The model is complicated and difficult to learn.
Accounting information produced will reflect transactions but not events,
some of which are significant.
j. If the stock market is efficient in the semi-strong form, which of the following is
true?
1)
2)
3)
4)
Knowledgeable investors cannot lose money.
Public information will be carefully considered by the market and will cause
appropriate stock market reactions.
All changes in income will cause stock market prices to increase.
Only past price information is reflected in stock market prices; these past
prices cannot be used to predict future stock market price.
k. Why does ratio analysis have importance even in a semi-strong efficient market?
1)
2)
3)
4)
The semi-strong efficient market is not proven.
Ratios provide information on risk.
Only past price information is reflected in stock market price; ratios provide
information about future trends.
Ratio analysis can be used to find stocks that are undervalued by the market
and thus identify investment targets.
l. Why is financial statement analysis limited?
1)
2)
3)
4)
Many financial statements have inadequate disclosure, making analysis
invalid.
The information is not presented soon enough to be timely.
It takes too long to gather appropriate information.
There is so much diversity of accounting practices that comparisons are very
difficult.
Question 4 (25 marks)
(17 marks for Requirement 1; 5 marks for Requirement 2; and 3 marks for
Requirement 3)
MAPLE LEAF COMPANY
Balance Sheet
December 31
20X7
20X6
ASSETS
Cash
Accounts receivable
Inventories
Land
Plant and equipment (net of accumulated depreciation)
Patents
TOTAL
50.0
105.0
130.0
162.5
245.0
15.0
707.5
45.0
70.0
110.0
100.0
266.5
16.5
608.0
LIABILITIES AND EQUITY
Accounts payable
Staff expense payable
Future income tax liability
Borrowings, bonds
Ordinary shares
Retained earnings
TOTAL
130.0
100.0
70.0
65.0
241.5
101.0
707.5
100.0
105.0
50.0
90.0
190.0
73.0
608.0
MAPLE LEAF COMPANY
Income Statement
20X7
Sales
Cost of sales
Gross margin
500.0
280.0
220.0
Staff expense
Depreciation
Amortization of patents
Interest expense
Gain on retirement of bonds
Miscellaneous expense
Loss on sale of equipment
Profit before income tax
95.0
10.0
1.5
8.0
(10.0)
3.5
2.0
110.0
Income tax — current
Income tax — future
Profit
29.5
20.0
60.5
Additional information
 On March 3, 20X7, the company issued a 10% stock dividend. The market price per
share of the ordinary stock was €7.50 on March 3, 20X3.
 On April 2, 20X7, the company issued 3,800 shares of ordinary stock for land. The
ordinary stock and land had current market value of approximately €20,000.
 On May 16, 20X7, the company retired borrowings, bonds with a face value of
€25,000.
 On July 31, 20X7, the company sold equipment costing €26,500 with a book value of
€11,500 for €9,500.
 On October 31, 20X7, the company declared and paid a €0.02 per share cash dividend.
 On November 10, 20X7, the company purchased land for €42,000 cash.
 The future income tax liability represents a temporary difference relating to the use of
depreciation allowed for income tax reporting and straight-line depreciation allowed
for financial statement reporting.
 Borrowings, bonds mature December 31, 20X9.
 Ordinary shares issued and outstanding on December 31, 20X6, were 42,000 and at
December 31, 20X7, were 50,000.
 Round ratios to two decimal places.
Required
1. Prepare a statement of cash flow in good form using the direct method to present the
operating activities section.
2. Compute the 20X7 ratios to evaluate solvency, omit times debt service cost earned.
3. Provide an assessment of the company’s solvency and liquidity based on the two
above requirements.
Suggested solutions
Question 1 (25 marks)
Computer solution
Parts (a) and (b) (14 marks)
(6 marks for vertical analysis; 6 marks for horizontal analysis; and 2 marks for
Row 10 and Row 30 formula)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
A
FA3: LESSON 9: QUESTION 1
CGA-CANADA
B
C
D
E
F
G
H
I
FOREST PRODUCTS INC.
Vertical Analysis
20X8
20X7
20X6
20X5
Amount Percent Amount Percent Amount Percent Amount Percent
Assets:
Working capital
Investments and other
Capital assets
Assets of discontinued operations
Net assets
957.7
90.6
1,289.2
0.0
2,337.5
41.0% 407.6
3.9%
36.3
55.2% 1,286.5
0.0% 647.4
100.0% 2,377.8
17.1% 126.2
1.5%
65.8
54.1% 1,318.2
27.2% 1,262.9
100.0% 2,773.1
4.6% 197.7
2.4%
97.8
47.5% 2,200.3
45.5%
0.0
100.0% 2,495.8
7.9%
3.9%
88.2%
0.0%
100.0%
15
16 Liabilities and shareholders' equity:
0.0
17 Long-term debt
161.8
18 Future income taxes
0.0
19 Liabilities of discontinued operations
0.0
20 Preferred shares issued by subsidiaries
0.0
21 Non-controlling interest
2,175.7
22 Shareholders' equity
2,337.5
23 Total capitalization
0.0%
0.0
6.9% 202.8
0.0% 174.5
0.0%
0.0
0.0%
0.0
93.1% 2,000.5
100.0% 2,377.8
0.0%
75.0
8.5% 136.7
7.3% 438.3
0.0%
0.0
0.0% 176.2
84.1% 1,946.9
100.0% 2,773.1
2.7% 227.6
4.9% 190.0
15.8%
0.0
0.0%
34.3
6.4% 174.5
70.2% 1,869.4
100.0% 2,495.8
9.1%
7.6%
0.0%
1.4%
7.0%
74.9%
100.0%
24
25
26
27
28
29 Assets:
30 Working capital
31 Investments and other
32 Capital assets
33 Assets of discontinued operations
34 Net assets
Horizontal Analysis
20X8
20X7
20X6
20X5
Amount Percent Amount Percent Amount Percent Amount Percent
957.7
90.6
1,289.2
0.0
2,337.5
484.4% 407.6
92.6%
36.3
58.6% 1,286.5
0.0% 647.4
93.7% 2,377.8
206.2% 126.2
37.1%
65.8
58.5% 1,318.2
51.3% 1,262.9
95.3% 2,773.1
63.8% 197.7
67.3%
97.8
59.9% 2,200.3
100.0%
0.0
111.1% 2,495.8
100.0%
100.0%
100.0%
0.0%
100.0%
35
36 Liabilities and shareholders' equity:
0.0
37 Long-term debt
161.8
38 Future income taxes
0.0
39 Liabilities of discontinued operations
0.0
40 Preferred shares issued by subsidiaries
0.0
41 Non-controlling interest
2,175.7
42 Shareholders' equity
2,337.5
43 Total capitalization
0.0%
0.0
85.2% 202.8
0.0% 174.5
0.0%
0.0
0.0%
0.0
116.4% 2,000.5
93.7% 2,377.8
0.0%
75.0
106.7% 136.7
39.8% 438.3
0.0%
0.0
0.0% 176.2
107.0% 1,946.9
95.3% 2,773.1
33.0% 227.6
71.9% 190.0
100.0%
0.0
0.0%
34.3
101.0% 174.5
104.1% 1,869.4
111.1% 2,495.8
100.0%
100.0%
0.0%
100.0%
100.0%
100.0%
100.0%
44
(2 marks)
10
A
Working capital
B
957.7
C
=B10/$B$14
D
407.6
E
=D10/$D$14
F
126.2
G
=F10/$F$14
H
197.7
I
=H10/$H$14
30
A
Working capital
B
957.7
C
=B30/$H$30
D
407.6
E
=D30/$H$30
F
126.2
G
=F30/$H$30
H
197.7
I
=H30/$H$30
c. (8 marks)
FPI 20X8 Net Assets
0%
Working capital
41%
55%
Investments and other
Property, plant and equipment
4%
Assets of discontinued
operations
FPI 20X7 Net Assets
17%
27%
2%
Working capital
Investments and other
Property, plant and equipment
54%
Assets of discontinued
operations
d. (3 marks)
The vertical analysis shows the impact of discontinued operations on the entity. The
assets of the discontinued operations were 45% of total assets in 20X6; after divesting,
they no longer exist. The reduction in net assets shown in horizontal analysis is because
of the discontinued operation. A major portion of the company’s assets has been sold.
Other assets, such as working capital and property, plant and equipment, are significant
and are more significant after the discontinued operation is sold. Horizontal analysis
backs up this picture. The significant growth in working capital is notable. Overall, the
picture is one of downsizing, as net assets are reduced to 93.7% of their 20X5 balances.
On the other side of the balance sheet, it’s clear that the operation is financed only
through equity; all other significant financing vehicles were cleared up after the
discontinued operation was eliminated. Equity has increased in significance as a source
of financing.
Question 2 (26 marks)
Computer solution
Parts (a), (b), and (c) (14 marks)
(6 marks for efficiency; 5 marks for solvency; 3 marks for liquidity)
A
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
67
68
69
70
71
72
73
74
75
76
77
78
79
80
B
RATIO ANALYSIS
20X7
1998
Efficiency
Asset turnover
Accounts receivable turnover*
Average collection period of accounts receivable
Inventory turnover
Solvency
Debt-to-equity**
Debt-to-total capitalization
Debt-to-total assets
Liquidity
Current ratio
Quick ratio
0.9
5.7
64
3.9
0.29
0.11
0.23
3.7
2.8
A
Efficiency
Asset turnover
Accounts receivable turnover*
Average collection period of accounts receivable
Inventory turnover
B
=B49/((B26+C26)/2)
=B49/((B11+C11)/2)
=365/B69
=550000/((B12+C12)/2)
Solvency
Debt-to-equity**
Debt-to-total capitalization
Debt-to-total assets
=B38/B45
=(B38-B34)/(B46-B34)
=B38/B26
Liquidity
Current ratio
Quick ratio
=B15/B34
=(B9+B10+B11)/B34
d. (12 marks)
Efficiency ratios
Lafarge is not as efficient in asset turnover as the industry. The industry asset turnover is
1.0; Lafarge is only 0.9. This indicates the presence of redundant assets or underperforming assets.
Lafarge is not as efficient in accounts receivable management as the industry. Lafarge
collects its accounts receivable 5.7 times per year, versus the industry average of 6.3.
This means that the industry collects in 58 days, while Lafarge collects in 64 days. This is
not a huge difference, but speed of cash flow is very important, and this operating area
should be investigated.
Inventory turnover, the number of times inventory is sold, is very close to industry
averages and does not indicate any problem.
Solvency ratios
Lafarge is more solvent than the rest of the industry. It holds less total debt (.29 versus
.55) as a percentage of equity, less debt as a percentage of total capitalization (.11 versus
.26) and less debt as a percentage of total assets (.23 versus .35). The company’s
financial risk is accordingly less than that of the industry. This may be good (less risk) or
bad (less opportunity to provide leverage returns for shareholders).
Liquidity
Lafarge is significantly more liquid than other firms in the industry. Its current ratio is
3.7, as compared to the industry 2.0, meaning that either Lafarge holds a materially high
amount of current assets or has very little current liabilities. Its quick ratio is 2.8, .9 less
than the current ratio, indicating that inventory and other non-monetary current assets are
material. This is relatively more than the industry statistics suggest that other firms carry.
On the other hand, the inventory turnover ratio is about on target with the industry, so
inventory is not necessarily a big problem.
One suspects that the current ratio is skewed by a lack of current liabilities. This current
ratio situation may suggest that Lafarge is inefficient in its current position management.
Current liabilities are usually not subject to interest charges, and are an efficient way to
finance operations. Excess receivables or inventory may not generate revenue and may
run the risk of becoming uncollectible or obsolete.
This analysis is based on the assumption that industry averages are a good yardstick for
comparison. If Lafarge is different than the industry, there may be trouble spots that are
not identified by this analysis, or areas of acceptable performance inappropriately
identified as problematic.
Question 3 (24 marks)
(2 marks each)
a. 2)
The acid test, or quick ratio, is the most severe measure of immediate liquidity because
the numerator includes only those items that are readily marketable. Answer (1) measures
efficiency not liquidity; answer (3) includes more elements (inventory) in the numerator
than in (2). Answer (4) measures the maximum number of days of operation, not the
ability to meet current obligations.
b. 1)
Inventory turnover [answers (3) and (4)] compares COGS and inventory — this cannot
be judged with the data given. An increase in inventory normally causes an increase in
the current ratio. If the current ratio declined, then the acid test ratio, which looks at the
bulk of the numerator other than inventory, must also have declined.
c. 4)
The current ratio is less than 1. In items (1) and (2) both current assets and current
liabilities increase by the same amount and the ratio increases. Item (3) clearly increases
the ratio. In (4), both current assets and current liabilities decline, as does the ratio.
d. 2)
Item (1) is incorrect because total assets are used as the base. (3) is false because small
changes in large items may be very significant. (4) is incorrect because all public
information is immediately included in market prices.
e. 1)
Higher asset turnover means more efficient asset management and use. Ratios in (2) and
(3) are typically favourable if higher. Lower age of accounts receivable is preferable, so
(4) is incorrect.
f. 4)
Decreasing COGS would decrease the ratio, whether inventory increased or remained the
same, thus answers (1) and (3) are incorrect. Answer (2) is not true. If COGS doubled
and average inventory doubled, the ratio would not change. In answer (4), the numerator
increases at the same time as the denominator decreases. The ratio will increase.
g. 4)
Answers (1), (2), and (3) are all plausible explanations of the difference in ratios.
However, speed of collection is not indicative of the profitability of the company, so
answer (4) is not an appropriate conclusion.
h. 1)
Measurement of the results of operations is the primary reporting focus, so
(2) is incorrect. Market value is sometimes used in financial reporting, especially when
below cost, so (3) is incorrect and costs are recognized as usefulness of related assets
expires, so (4) is incorrect.
i. 3)
Item (3) is the only item not listed in Topic 9.1. All others are itemized.
j. 2)
Knowledgeable investors can still lose money in an efficient market:
stocks are still risky; (1) is incorrect. Item (3) is incorrect because if income is changed
by a change in accounting policy, like amortization, that does not affect cash flow, this
change in income will not cause stock market price to change. Finally, (4) is incorrect
because the semi-strong form of the EMH means that more than just past price
information is included in stock market prices.
k. 2)
The semi-strong form of the EMH has a reasonable body of proof behind it; (1) is
incorrect. The second statement in (3) is plausible but the first sentence is incorrect: more
than just past prices is included in stock market prices under the semi-strong form of the
EMH. Therefore, (3) is incorrect. Item (4) is also incorrect: this is exactly what the semistrong form of the EMH says investors can’t do — there should be no way to evaluate
public information and beat the market.
l. 4)
Item (4) is the only item referred to in the list in Topic 9.5. Financial statements are
required to have adequate disclosure, and be timely, so (1) and (2) are not correct.
Item (3) is too subjective to support.
Question 4 (25 marks)
Requirement 1 (17 marks: 3 marks for overall format including the bottom “change
in cash” section; 6 marks for operating activities; 4 for investing activities; and 4 for
financing activities)
MAPLE LEAF COMPANY
Cash Flow Statement
December 31, 20X7
Cash from operations
Cash from customers (€500,000 – €35,000)....................
Cash paid for materials and labour* ................................
Cash paid for interest .......................................................
Cash paid for taxes...........................................................
Cash from investing activities
Purchased land .................................................................
Sale of equipment ............................................................
Cash from financing activities
Repayment of bonds ........................................................
Dividends** .....................................................................
Change in cash .......................................................................
Opening cash .........................................................................
Closing cash ...........................................................................
€ 465,000
(373,500)
(8,000)
(29,500)
54,000
(42,500)
9,500
(33,000)
(15,000)
(1,000)
(16,000)
5,000
45,000
€ 50,000
* €280,000 (COGS) + €95,000 (Wages) + €3,500 (Misc. expense) + €20,000 (change
in inventory) – €30,000 (change in accounts payable) + €5,000 (change in wages
payable)
** (42,000 + 4,200 (10% stock dividend) + 3,800 (for land) = 50,000 shares)  €0.02
Requirement 2 (5 marks)
Solvency
Debt-to-equity (total debt)
€130,000 + €100,000 + €70,000 + €65,000 = 1.07
€241,500 + €101,000
Debt-to-total capitalization
€65,000 + €70,000*
= 0.28
€65,000 + €70,000 + €241,500 + €101,000*
There are two possible solutions for the debt-to-capital employed ratio, depending on
whether the student deducts current assets or liquid current assets from the denominator.
Debt-to-capital employed
€130,000 + €100,000 + €70,000 + €65,000 = 0.66
€707,500 – (€50,000 + €105,000)
€130,000 + €100,000 + €70,000 + €65,000 = 0.86
€707,500 – (€50,000 + €105,000+130,000)
Debt-to-total assets
€130,000 + €100,000 + €70,000 + €65,000 = 0.52
€707,500
Times interest earned
€110,000 + €8,000
€8,000
Times debt service earned
= 14.8
n/a
* Future income taxes included; other assumptions are allowable.
Requirement 3 (3 marks)
Maple Leaf generated €54,000 from operations, spent a net €33,000 on property, plant
and equipment, and retired a portion of its long-term debt. The cash position showed a
modest increase.
Overall, the company has modest levels of long-term debt. Total debt is more significant,
since there is €1.07 of debt for each euro of equity. However, long-term debt only
represents 28% of total capitalization and times interest earned is a healthy 15 times.
Short-term debt is not excessive when viewed as part of the total picture, as debt is only
52% of total assets. Short-term debt introduces some additional risk into the financial
management picture, but is low or no cost debt to the organization.