As loan analyst for Madison Bank, you have been presented the following informat

Question

As loan analyst for Madison Bank, you have been presented the following information.

Plunkett Co.

Herring Co.

Assets

Liabilities and Stockholders’ Equity

Each of these companies has requested a loan of $50,990 for 6 months with no collateral offered. In as much as your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Compute the various ratios for each company. (Round answer to 2 decimal places, e.g. 2.25.)

Plunkett Co.

Herring Co.

Plunkett Co.

Herring Co.

Assets

Cash $110,100 $326,500 Receivables 220,700 306,700 Inventories 577,100 518,700    Total current assets 907,900 1,151,900 Other assets 498,400 615,800    Total assets $1,406,300 $1,767,700

Liabilities and Stockholders’ Equity

Current liabilities $295,100 $349,100 Long-term liabilities 396,200 498,400 Capital stock and retained earnings 715,000 920,200    Total liabilities and stockholders’ equity $1,406,300 $1,767,700 Annual sales $948,900 $1,499,200 Rate of gross profit on sales 30 % 40 %

Explanation / Answer

Plunkett Co. Herring Co. Current ratio(current asset/Current liabilities) 3.08 3.30 Acid-test ratio ((current asset-Inventories)/Current liabilities) 1.12 1.81 Accounts receivable turnover Net Annual Credit Sales/(average accounts receivable) 4.30 4.89 Inventory turnover - sales/Inventory 1.64 2.89 Cash to current liabilities (cash/Current liabilities) 0.37 0.94

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