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ii) Please provide sufficient interpretations of the ratios and explain their change (or no change) from the year before, in
Please provide an interpretation for Texas Instrument’s Leverage Ratios in 2017-2018.
Leverage Ratios Total Debt Ratio Debt-Equity Ratio Equity Multiplier Times Interest Earned Cash Coverage 2018 0.4752 0.9054 1
0 0
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Answer #1

There has been an increase in total debt ratio and debt to equity ratio. It shows the company is raising its financial needs from Debt financing. That is the debt portion of the capital structure of the company is increasing.

As there is an increase in debt financing, it is also increasing the interest burden of the company.
It is evident from the decrease in Times interest earned ratio from 2017 to 2018.

Equity multiplier= (total debt+total equity)÷ total equity

As there is an increase in debt financing, it is also increasing the equity multiplier from 2017 to 2018.

The decrease in cash coverage ratio from 2017 to 2018 represents that the company is utilising its cash reserves to pay for the interest payments of the increased debt financing.

It shows a decline in working Capital Management and can prove to be fatal for the health of the company.
As it represents that the company is unable to service its debt financing.

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