Ratio computation and analysis

Assignment Help Finance Basics

Reference no: EM1352013

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. 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.

Reference no: EM1352013

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