Assume that your team of financial and accounting analysts is working in the loan department of a local bank. A. You have been asked to analyze the two companies by calculating the following ratios (see Exhibit 13-5 on page 617 in chapter 13) for which sufficient information is available. Please round all calculations to two decimal places. (60 points): 1. Net profit margin a. 0.1 b. 0.125 2. Gross profit percentage 3. Fixed assets turnover 4. Return on equity 5. Earnings per share 6. Price/earnings ratio 7. Receivables turnover 8. Days to collect 9. Inventory turnover 10.Days to sell 11. Current ratio 12.Debt-to-assets B. Based on the ratios, perform an analysis to determine which loan is preferable to the bank. Consider in your analysis the profitability, liquidity, and solvency ratios. (20 points) The results of the calculations in part A and the analysis in part B are to be summarized in a memorandum format, addressed to the branch manager. Please use a word document file and a 12 font (single spaced, Times New Roman). You may choose to include tables or other visuals as per your preference. The document should be formatted professionally and free of typos and glaring grammar issues. (20 points) 14 BIU AA. ES Cash $ 25,000 $ 45,000 Accounts Receivable, Net 55,000 16,000 Inventory 110,000 25,000 Equipment, Net 550,000 160,000 Other Assets 140.000 46,000 Total Assets $880,000 $292,000 Current Liabilities $120,000 $ 15,000 55,000 190,000 Note Payable (long-term) Common Stock (par $20) 480,000 210,000 Additional Paid-In Capital 50,000 4,000 40.000 8.000 Retained Earnings Total Liabilities and Stockholders’ Equity $880,000 $292.000 Sales Revenue $800,000 $280,000 Cost of Goods Sold 480,000 150,000 Other Expenses 240,000 95,000 Net Income $ 80,000 $ 35,000 Other Data Per share price at end of year $ 14.00 $ 11.00 Selected Data from Previous Year Accounts Receivable, Net $ 47,000 $ 14,000 190,000 55,000 Note Payable (long-term) 550,000 160,000 Equipment, Net 95,000 38,000 Inventory Total Stockholders’ Equity 570,000 202,000 These two companies are in the same business and state but different cities. Each 2 company has been in operation for about 10 years. Both companies received an unqualified audit opinion (clean) on the financial statements. Both companies estimate bad debts based on aging analysis, but company [B] has estimated slightly higher uncollectible rates than [A]. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account. Company (A) wants to borrow $75,000 cash and [B] is asking for $30,000. The loans will be for a two- year period.
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