Jen Fama, the associate credit analyst, was assigned the task of analyzing James' loan request. Industry Financial Ratios Current ratio Acid-test ratio Debt ratio Time interest earning Average collection periods Inventory turnover Return on equity Operating return on assets Operating profit margin Total asset turnover Fixed asset turnover Industry financial ratios 2016 1.8 0.9 0.5 10 20 7 12.00% 16.80% 14.00% 1.20 1.80 A. 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? Calculate in excel James' ratios to compare with the industry ratios. Submit your excel file. B. 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.
Jen Fama, the associate credit analyst, was assigned the task of analyzing James' loan request. Industry Financial Ratios Current ratio Acid-test ratio Debt ratio Time interest earning Average collection periods Inventory turnover Return on equity Operating return on assets Operating profit margin Total asset turnover Fixed asset turnover Industry financial ratios 2016 1.8 0.9 0.5 10 20 7 12.00% 16.80% 14.00% 1.20 1.80 A. 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? Calculate in excel James' ratios to compare with the industry ratios. Submit your excel file. B. 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Cash
Balance Sheet
Marketable securities
Account receivable
Inventory
Prepaid rent
Total current assets
Net Plant and equipment
Total assets
Account payable
Notes payable
Accruals
Total current liabilities
Long-term debt
Common stockholders' equity
Total liabilities and stockholders' equity
Sales
Less; Cost of goods sold
Gross profit
Less: General and administrative
Less: Interest
Less: Depreciation
Total operating and interest expense
Earning before tax
Less: tax
Net income
Less: cash dividend
Change in retained earnings
James Company
2015
15,000
6,000
42,000
51,000
1,200
115,200
286,000
401,200
48,000
15,000
6,000
69,000
160,000
172,200
401,200
2016
14,000
6,200
33,000
84,000
1,100
138,000
270,000
408,300
57,000
13,000
5,000
75,000
150,000
183,300
408,300
600.00
460.000
140.000
30.000
10.000
30.000
70.000
70.000
27.100
42.900
31.800
11.100
Transcribed Image Text:Jen Fama, the associate credit analyst, was assigned the task of analyzing James' loan request.
Industry Financial Ratios
Current ratio
Acid-test ratio
Debt ratio
Time interest earning
Average collection periods
Inventory turnover
Return on equity
Operating return on assets
Operating profit margin
Total asset turnover
Fixed asset turnover
Industry financial ratios
2016
1.8
0.9
0.5
10
20
7
12.00%
16.80%
14.00%
1.20
1.80
A. 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? Calculate
in excel James' ratios to compare with the industry ratios. Submit your excel file.
B. 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.
Expert Solution
Introduction
Ratio analysis is a financial analysis technique that involves the use of ratios to evaluate the performance, liquidity, solvency, and efficiency of a company. Ratio analysis involves comparing two or more financial figures to gain insights into the financial health of a business. The ratios are derived from the financial statements of the company, such as the balance sheet and the income statement.
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