Financial Analysis The T.P. Jarmon Company manufactures and sells as line of exclusive sportswear. The firm's sales were $600,000 for the year just ended, and its total assets exceeded $400,000. 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 $80,000. In the past, the company has relied on its suppliers to finance a large part of its need for inventory. However, in recent months tight money conditions have led the firm's supplier to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to replace a large portion of the firm's payables during the summer, which is the firm's peak seasonable 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
Fixed asset turnover = sales/net fixed assets
A. Calculate the financial ratios for 2010 corresponding to the industry norms provided.
B. Which of the ratios reported in the industry norms do you feel should be most crucial in determining whether the bank should extend the line of credit?
C. Prepare Jarmon's statement of cash flows for the year ended December 31, 2010. Interpret your findings.
D. Use the information provided by the financial ratios and the cash flow statement to decide if you would support making this loan