Question

Casey Cordell owner of digital photography service. The company has been profitable every year of its existence. Its debt ratio is currently 68%, its current ratio is 1.1, and its debt -to-equity ratio is 72.2 percent. Do these financial numbers cause any reason to be concerned? Why or why not? Discuss

Answer 1

it can be seen that the overall debt ratio and debt to equity ratio is very high and it is having a risk on the overall solvency of the business in the long run as when there will be a higher it to Capital ratio will mean that the company is having a very high exposure to overall payment of the fixed rate and it can lead to problem for the company and the adverse economic cycle when there will be lesser of the income generation and the company will not be able to deal with the payment to the debt capital.

the current ratio of the company is also not on the very high side because it is just 1.1 which is not considered very good because it should be above 2, in order to have a higher debt ratio. the overall presence of debt capital will be making the company prone to risk of insolvency.