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(Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets exceeded $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling $83,000. In the past, the company has relied on its suppliers to finance a large part o its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements. are found in the following tables: Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is 1.84. (Round to two decimal places.). T. P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) T. P. Jarmon's debt ratio is%. (Round to one decimal place.)

(Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets exceeded $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling $83,000. In the past, the company has relied on its suppliers to finance a large part o its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements. are found in the following tables: Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is 1.84. (Round to two decimal places.). T. P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) T. P. Jarmon's debt ratio is%. (Round to one decimal place.)

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 1cM
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**Financial Statement Analysis** The T.P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets approached $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Velmiah, has decided to seek a line of credit from the bank totaling $83,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Velmiah wants to use the line of credit to support a larger portion of the firm’s payables during the summer, when its finished goods must be assembled in anticipation of the fall selling season. The two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm’s income statement for the year just ended was provided. These statements are found in the following tables. Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon’s loan request. **Tasks:** a. Calculate the following financial ratios for 2013: - T.P. Jarmon's current ratio is 1.84. (Round to two decimal places.) - T.P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) - T.P. Jarmon's debt ratio is 0.46. (Round to one decimal place.) b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation.
Transcribed Image Text:**Financial Statement Analysis** The T.P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets approached $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Velmiah, has decided to seek a line of credit from the bank totaling $83,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Velmiah wants to use the line of credit to support a larger portion of the firm’s payables during the summer, when its finished goods must be assembled in anticipation of the fall selling season. The two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm’s income statement for the year just ended was provided. These statements are found in the following tables. Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon’s loan request. **Tasks:** a. Calculate the following financial ratios for 2013: - T.P. Jarmon's current ratio is 1.84. (Round to two decimal places.) - T.P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) - T.P. Jarmon's debt ratio is 0.46. (Round to one decimal place.) b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation.
### T. P. Jarmon Company Balance Sheets #### 2012 and 2013 | **2012** | **2013** | |----------|----------| | **Cash** | $15,000 | $14,000 | | **Marketable securities** | $6,010 | $6,200 | | **Accounts receivable** | $42,100 | $32,900 | | **Inventory** | $51,000 | $84,000 | | **Prepaid rent** | $1,210 | $1,100 | | **Total current assets** | $115,320 | $138,200 | | **Net plant and equipment** | $285,900 | $270,100 | | **Total assets** | $401,220 | $408,300 | --- |**2012** | **2013** | |----------|----------| | **Accounts payable** | $48,000| $56,900 | | **Notes payable** | $14,900 | $13,100 | | **Accruals** | $5,990 | $4,990 | | **Total current liabilities** | $68,890 | $74,990 | | **Long-term debt** | $160,000 | $149,900 | | **Common stockholders' equity** | $172,330 | $183,410 | | **Total liabilities and owners' equity** | $401,220 | $408,300 | --- *(Click on the icon in order to copy its contents into a spreadsheet.)* #### T. P. Jarmon Company **Income Statement for 2013** --- ### Explanation of Graphs and Diagrams This data table contains two balance sheets for the T. P. Jarmon Company, comparing the figures for the years 2012 and 2013. **Key Elements of the Balance Sheets:** - **Current Assets**: Includes cash, marketable securities, accounts receivable, inventory, and prepaid rent. These collectively contribute to the company's liquidity. - **Net Plant and Equipment**: Represents the long-term assets, after accounting for depreciation. - **Total Assets**: Sum of total current assets and net plant and equipment. **Liabilities and Owners' Equity:** - **Current Liabilities**: Includes accounts payable, notes payable, and accruals
Transcribed Image Text:### T. P. Jarmon Company Balance Sheets #### 2012 and 2013 | **2012** | **2013** | |----------|----------| | **Cash** | $15,000 | $14,000 | | **Marketable securities** | $6,010 | $6,200 | | **Accounts receivable** | $42,100 | $32,900 | | **Inventory** | $51,000 | $84,000 | | **Prepaid rent** | $1,210 | $1,100 | | **Total current assets** | $115,320 | $138,200 | | **Net plant and equipment** | $285,900 | $270,100 | | **Total assets** | $401,220 | $408,300 | --- |**2012** | **2013** | |----------|----------| | **Accounts payable** | $48,000| $56,900 | | **Notes payable** | $14,900 | $13,100 | | **Accruals** | $5,990 | $4,990 | | **Total current liabilities** | $68,890 | $74,990 | | **Long-term debt** | $160,000 | $149,900 | | **Common stockholders' equity** | $172,330 | $183,410 | | **Total liabilities and owners' equity** | $401,220 | $408,300 | --- *(Click on the icon in order to copy its contents into a spreadsheet.)* #### T. P. Jarmon Company **Income Statement for 2013** --- ### Explanation of Graphs and Diagrams This data table contains two balance sheets for the T. P. Jarmon Company, comparing the figures for the years 2012 and 2013. **Key Elements of the Balance Sheets:** - **Current Assets**: Includes cash, marketable securities, accounts receivable, inventory, and prepaid rent. These collectively contribute to the company's liquidity. - **Net Plant and Equipment**: Represents the long-term assets, after accounting for depreciation. - **Total Assets**: Sum of total current assets and net plant and equipment. **Liabilities and Owners' Equity:** - **Current Liabilities**: Includes accounts payable, notes payable, and accruals
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