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

ID: 2589055 • Letter: A

Question

As loan analyst for Utrillo Bank, you have been presented the following information. Toulouse Co. Lautrec Co. Cash Receivables Inventories $119,000 216,400 578,500 913,900 492,700 $1,406,600 $316,100 306,400 511,500 1,134,000 617,300 $1,751,300 Total current assets Other assets Total assets Current liabilities Long-term liabilities Capital stock and retained earnings $292,300 408,400 705,900 $1,406,600 $938,300 $350,800 492,700 907,800 $1,751,300 $1,496,400 Total liabilities and stockholders equity Annual sales Rate of gross profit on sales 25 % 35 % Each of these companies has requested a loan of $49,910 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Explanation / Answer

COMPUTATION OF VARIOUS RATIOS:

Quick Assets / current Liabilities

* Quick assets is current assets minus inventories

Cost of goods sold / Average inventory

* Cost of goods sold = Sales - Gross Profit

RATIOS FORMULA TOULOUSE CO. LAUTREC CO. Current Ratio Current Assets / current Liabilities 913,900 / 292,300 = 3.12:1 1,134,000 / 350,800 = 3.23:1 Acid-test ratio

Quick Assets / current Liabilities

* Quick assets is current assets minus inventories

335,400 / 292,300 = 1.14:1 622,500 / 350,800 = 1.77:1 Inventory turnover

Cost of goods sold / Average inventory

* Cost of goods sold = Sales - Gross Profit

703,725 / 578,500 = 1.21 times 972,660 / 511,500 = 1.90 times Accounts Receivable Turnover Net Credit Sales / Average accounts receivable 938,300 / 216,400 = 4.33 times 1,496,400 / 306,400 = 4.88 times Cash to Current liabilities Cash / Current Liabilities 119,000 / 292,300 = 0.40:1 316,100 / 350,800 = 0.90:1