Reference no: EM132235954

Question - You are a credit analyst of a growing commercial bank and have recently received loan applications from two companies of relatively similar size.

Shown below are selected financial data for these two applicants at the end of the current year:

	Blue Company	Red Company
Net credit sales	675,000	560,000
Cost of goods sold	504,000	480,000
Cash	51,000	20,000
Accounts receivable (net)	75,000	70,000
Inventory	84,000	160,000
Current liabilities	105,000	100,000

Assume that the year-end balances for accounts receivable and for inventory approximate the average balances of these items throughout the year.

Required -

A. For each of the two companies, compute the following:

1. Working capital.

2. Current ratio.

3. Acid test ratio.

4. Accounts receivable turnover.

5. Average collection period.

6. Inventory turnover.

7. Days sales in inventory.

8. Operating cycle.

B. Assuming funds are limited and only one of the two applicants can be accommodated, to whom would you be willing to give a short-term loan and why?