Problem
A company decides to request a loan from a banking institution. The company has equity of 2,000,000, its total assets are 4,000,000, and its total liabilities are 2,000,000. Current assets are 1,200,000 of which accounts receivable are 250,000, inventory is 300,000, and cash availability is 200,000. On the other hand, current liabilities are 1,000,000, of which accounts payable constitute 80% of them. The company's net income is 250,000 for the past three years, with sales of 400,000 and cost of sales of 250,000. Based on this data, perform a credit analysis and recommend whether or not to extend the loan to the company. Remember that you must calculate and interpret the following indicators:
a) Working Capital = current assets - current liabilities.
b) Debt ratio = total liabilities / total assets.
c) Return on Equity (ROE) = Net Income / Equity.