Reference no: EM1353540

As loan analyst for Utrillo Bank, you have been presented the following information:

Toulouse Co. Lautrec 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 $ 305,000 $ 350,000
Long-term liabilities 400,000 500,000
Capital stock and retained earnings
705,000 902,000
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. Inasmuch as your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Instructions
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.