Problem 9-19 Joseph Berio is a loan officer with the First Bank of Tennessee. Red Brick, Inc., a major producer of masonry products, has applied for a short-term loan. Red Brick supplies building material throughout the southern states, with brick plants located in Tennessee, Alabama, Georgia, and Indiana.The firm’s income statement and balance sheet are given below. The third table presents both a ratio analysis of Red Brick’s previous year’s financial statements and the industry averages of the ratios. Red Brick Income Statement (for the period ending December 12/31/20X1) Sales $ 199,000,000 Cost of goods sold 101,000,000 Administrative expenses 21,000,000 Operating income $ 77,000,000 Interest expense 14,000,000 Taxes 500,000 Net income $ 62,500,000 Red Brick Balance Sheet as of 12/31/20X2 Assets Liabilities and Stockholders’ Equity Cash $ 800,000 Accounts payable $ 43,000,000 Accounts receivable 32,000,000 * Notes payable 15,000,000 Inventory 83,000,000 † Long-term debt 53,000,000 Plant and equipment 131,000,000 Stockholders’ equity 135,800,000 $ 246,800,000 $ 246,800,000 *70% of sales are on credit. † Previous year’s inventory was $66,100,000. Company’s Ratios Industry (Previous Year) Average Current ratio 1.9:1 2.3:1 Quick ratio 0.5:1 0.8:1 Inventory turnover 4.1x 4.7x Average collection period 52 days 52 days Debt ratio (debt/total assets) 31% 47% Times-interest-earned 5.5 3.8 Return on equity 54.9% 14.0% Return on assets 28.9% 10.1% Operating profit margin 29.8% 15.1% Net profit margin 24.2% 8.9% To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year ratios and industry averages. Assume there are 365 days in a year. Do not round intermediate calculations. Round your answers to two decimal places. Current ratio of times is -Select-higher thanlower thanequal toItem 2 the industry average and -Select-higher thanlower thanequal toItem 3 the ratio in the previous year. Quick ratio of times is -Select-higher thanlower thanequal toItem 5 the industry average and -Select-higher thanlower thanequal toItem 6 the ratio in the previous year. Inventory turnover ratio of is -Select-higher thanlower thanequal toItem 8 the industry average and -Select-higher thanlower thanequal toItem 9 the ratio in the previous year. Average collection period of days is -Select-higher thanlower thanequal toItem 11 the industry average and -Select-higher thanlower thanequal toItem 12 the ratio in the previous year. Debt ratio of % is -Select-higher thanlower thanequal toItem 14 the industry average and -Select-higher thanlower thanequal toItem 15 the ratio in the previous year. Times-interest-earned ratio of is -Select-higher thanlower thanequal toItem 17 the industry average and -Select-higher thanlower thanequal toItem 18 the ratio in the previous year. Return on equity ratio of % is -Select-higher thanlower thanequal toItem 20 the industry average and -Select-higher thanlower thanequal toItem 21 the ratio in the previous year. Return on assets ratio of % is -Select-higher thanlower thanequal toItem 23 the industry average and -Select-higher thanlower thanequal toItem 24 the ratio in the previous year. Operating profit margin ratio of % is -Select-higher thanlower thanequal toItem 26 the industry average and -Select-higher thanlower thanequal toItem 27 the ratio in the previous year. Net profit margin ratio of % is -Select-higher thanlower thanequal toItem 29 the industry average and -Select-higher thanlower thanequal toItem 30 the ratio in the previous year.
Problem 9-19
Joseph Berio is a loan officer with the First Bank of Tennessee. Red Brick, Inc., a major producer of masonry products, has applied for a short-term loan. Red Brick supplies building material throughout the southern states, with brick plants located in Tennessee, Alabama, Georgia, and Indiana.
The firm’s income statement and
| Red Brick Income Statement | ||
| (for the period ending December 12/31/20X1) | ||
| Sales | $ | 199,000,000 |
| Cost of goods sold | 101,000,000 | |
| Administrative expenses | 21,000,000 | |
| Operating income | $ | 77,000,000 |
| Interest expense | 14,000,000 | |
| Taxes | 500,000 | |
| Net income | $ | 62,500,000 |
| Red Brick Balance Sheet as of 12/31/20X2 | ||||||
| Assets | Liabilities and |
|||||
| Cash | $ | 800,000 | Accounts payable | $ | 43,000,000 | |
| Accounts receivable | 32,000,000 | * | Notes payable | 15,000,000 | ||
| Inventory | 83,000,000 | † | Long-term debt | 53,000,000 | ||
| Plant and equipment | 131,000,000 | Stockholders’ equity | 135,800,000 | |||
| $ | 246,800,000 | $ | 246,800,000 | |||
| *70% of sales are on credit. | ||||||
| † Previous year’s inventory was $66,100,000. |
| Company’s Ratios | Industry | |
| (Previous Year) | Average | |
| Current ratio | 1.9:1 | 2.3:1 |
| Quick ratio | 0.5:1 | 0.8:1 |
| Inventory turnover | 4.1x | 4.7x |
| Average collection period | 52 days | 52 days |
| Debt ratio (debt/total assets) | 31% | 47% |
| Times-interest-earned | 5.5 | 3.8 |
| 54.9% | 14.0% | |
| 28.9% | 10.1% | |
| Operating profit margin | 29.8% | 15.1% |
| Net profit margin | 24.2% | 8.9% |
To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year ratios and industry averages. Assume there are 365 days in a year. Do not round intermediate calculations. Round your answers to two decimal places.
Current ratio of times is -Select-higher thanlower thanequal toItem 2 the industry average and -Select-higher thanlower thanequal toItem 3 the ratio in the previous year.
Quick ratio of times is -Select-higher thanlower thanequal toItem 5 the industry average and -Select-higher thanlower thanequal toItem 6 the ratio in the previous year.
Inventory turnover ratio of is -Select-higher thanlower thanequal toItem 8 the industry average and -Select-higher thanlower thanequal toItem 9 the ratio in the previous year.
Average collection period of days is -Select-higher thanlower thanequal toItem 11 the industry average and -Select-higher thanlower thanequal toItem 12 the ratio in the previous year.
Debt ratio of % is -Select-higher thanlower thanequal toItem 14 the industry average and -Select-higher thanlower thanequal toItem 15 the ratio in the previous year.
Times-interest-earned ratio of is -Select-higher thanlower thanequal toItem 17 the industry average and -Select-higher thanlower thanequal toItem 18 the ratio in the previous year.
Return on equity ratio of % is -Select-higher thanlower thanequal toItem 20 the industry average and -Select-higher thanlower thanequal toItem 21 the ratio in the previous year.
Return on assets ratio of % is -Select-higher thanlower thanequal toItem 23 the industry average and -Select-higher thanlower thanequal toItem 24 the ratio in the previous year.
Operating profit margin ratio of % is -Select-higher thanlower thanequal toItem 26 the industry average and -Select-higher thanlower thanequal toItem 27 the ratio in the previous year.
Net profit margin ratio of % is -Select-higher thanlower thanequal toItem 29 the industry average and -Select-higher thanlower thanequal toItem 30 the ratio in the previous year.
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