Problem: (Ratio Computation and Analysis; Liquidity)
As loan analyst for Utrillo Bank, you have been presented the following information.
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Toulouse Co.
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Lautrec Co.
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Assets
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Cash
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$ 120,000
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$ 320,000
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Receivables
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220,000
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302,000
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Inventories
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570,000
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518,000
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Total current assets
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910,000
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1,140,000
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Other assets
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500,000
|
612,000
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Total assets
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$1,410,000
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$1,752,000
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Liabilities and Stockholders' Equity
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Current liabilities
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$ 305,000
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$ 350,000
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Long-term liabilities
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400,000
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500,000
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Capital stock and retained earnings
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705,000
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902,000
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Total liabilities and stockholders' equity
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$1,410,000
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$1,752,000
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Annual sales
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$ 930,000
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$1,500,000
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Rate of gross profit on sales
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30%
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40%
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Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Inasmuch as your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Instructions:
Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.