Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential opportunities. In order to evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. with the industry. Balance Sheet December 31 December 31 Income Statement For the year ended Dec 31, 2021 2020 2021 Assets Sales (100% credit) 1,330 Cash
Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential opportunities. In order to evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. with the industry. Balance Sheet December 31 December 31 Income Statement For the year ended Dec 31, 2021 2020 2021 Assets Sales (100% credit) 1,330 Cash
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 10P
Related questions
Question
Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential opportunities. In order to evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. with the industry.
Balance Sheet | December 31 | December 31 |
Income Statement For the year ended Dec 31, 2021 |
||
2020 | 2021 | ||||
Assets | Sales (100% credit) | 1,330 | |||
Cash | 305 | 270 | Less: Cost of goods sold | 760 | |
Accounts receivable | 275 | 290 | Gross profit | 570 | |
Inventory | 600 | 580 | Operating expenses | 30 | |
Current assets | 1,180 | 1,140 | 200 | ||
Plant and equipment | 1,700 | 1,940 | Net operating income | 340 | |
Less: acc depr | -500 | -600 | Less: Interest expense | 57 | |
Net plant and equipment | 1,200 | 1,340 | Net income before taxes | 283 | |
Total assets | 2,380 | 2,480 | Less: Taxes | 96 | |
Net income | 187 | ||||
Liab. and Owners' Equity | |||||
Accounts payable | 150 | 200 | |||
Notes payable | 125 | - | |||
Current liabilities | 275 | 200 | |||
Bonds payable | 500 | 500 | |||
Total liabilities | 775 | 700 | |||
Common stock | 165 | 305 | |||
Paid-in-capital | 775 | 775 | |||
665 | 700 | ||||
Total stockholders' Equity | 1,605 | 1,780 | |||
Total Liab. and Owners' Equity | 2,380 | 2,480 |
![Questions:
1. What are the firm's financial strengths? Explain your answers.
2. What are the firm's financial weaknesses? Explain your answers.
3. Should the bank grant the loan? Explain your answer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F27da523c-1305-4dba-b632-4fe08ad77799%2Fed462db2-e687-4d56-a9c6-bcee414c9afa%2Fdcjn6su_processed.png&w=3840&q=75)
Transcribed Image Text:Questions:
1. What are the firm's financial strengths? Explain your answers.
2. What are the firm's financial weaknesses? Explain your answers.
3. Should the bank grant the loan? Explain your answer.
![PROBLEM:
Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential
opportunities. In order to evaluate the firm as a potential debtor, the bank would like to
compare Baker & Co. with the industry.
Compute the following ratios:
Industry
Evaluation
2021
average
(Good or Bad)
Formula
Current ratio
5.0
CA eoy / CL eoy
Acid test ratio
2.5
(Cash eoy + MS eoy + AR eoy) / CL eoy
CGS eoy / Inventory boy
AR boy / Daily Sales eoy
TL eoy / TA eoy
Ol eoy / IE eoy
Sales eoy / TA boy
EBIT eoy / Sales eoy
NI eoy / Sales eoy
Inventory turnover
2.2
Average collection period
90 days
Debt ratio
0.33
Times interest earned
7.0
Total asset turnover (use total assets, beg.)
0.8
Operating profit margin
20.0%
Net profit margin
12.0%
Return on total assets (tax rate = 35%)
9.0%
(After-tax IE eoy + NI eoy)/ TA boy
Return on equity
10.4%
NI eoy / Total equity boy](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F27da523c-1305-4dba-b632-4fe08ad77799%2Fed462db2-e687-4d56-a9c6-bcee414c9afa%2F0fp9eay_processed.png&w=3840&q=75)
Transcribed Image Text:PROBLEM:
Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential
opportunities. In order to evaluate the firm as a potential debtor, the bank would like to
compare Baker & Co. with the industry.
Compute the following ratios:
Industry
Evaluation
2021
average
(Good or Bad)
Formula
Current ratio
5.0
CA eoy / CL eoy
Acid test ratio
2.5
(Cash eoy + MS eoy + AR eoy) / CL eoy
CGS eoy / Inventory boy
AR boy / Daily Sales eoy
TL eoy / TA eoy
Ol eoy / IE eoy
Sales eoy / TA boy
EBIT eoy / Sales eoy
NI eoy / Sales eoy
Inventory turnover
2.2
Average collection period
90 days
Debt ratio
0.33
Times interest earned
7.0
Total asset turnover (use total assets, beg.)
0.8
Operating profit margin
20.0%
Net profit margin
12.0%
Return on total assets (tax rate = 35%)
9.0%
(After-tax IE eoy + NI eoy)/ TA boy
Return on equity
10.4%
NI eoy / Total equity boy
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