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E24-4 As loan analyst for Madison Bank

Price: $2.50

*E24-4 (Ratio Computation and Analysis; Liquidity) As loan analyst for Madison Bank, you have been
presented the following information.

  Plunkett Co. Herring Co.
 Assets Cash    120,000  320,000
 Receivables    220,000  302,000
 Inventories    570,000  518,000
 Total current assets    910,000  1,140,000
 Other assets    500,000  612,000
 Total assets    1,410,000  1,752,000
 Liabilities and Stockholders' Equity  
 Current liabilities    300,000  350,000
 Long-term liabilities    400,000  500,000
 Capital stock and retained earnings    710,000  902,000
 Total liabilities and stockholders' equity    1,410,000  1,752,000
 Annual sales    930,000  1,500,000
 Rate of gross profit on sales   30% 40%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. In as much as your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Which of the two companies, as judged by the information given above, would you recommend as the
better risk and why? Assume that the ending account balances are representative of the entire year.

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