Atlas Limited operates a small wholesale private company selling imported foods to grocery retailers on Prince Edward Island. The company began operations on January 1, 2014, and has just completed its second year of operations. In January 2015, the company moved to a new location and now rents a much larger facility. When the move occurred, additional bank loans were taken out to finance the purchase of some new equipment. The CEO of the business, Jim O'Sullivan, negotiated with the bank to have principal payments (not interest) on any bank loan delayed until 2017. Jim has asked you to review information from the company's financial statements shown below and to accompany him to the bank. He wants you to help him convince his banker to give the company an operating line of credit.
The banker has some misgivings. Jim is not sure why, because the current ratio has risen and the debt to total assets ratio has fallen slightly. He did tell you that a contingent liability relating to a lawsuit launched against the company will be disclosed in the financial statements, but it has not been recorded because an estimate could not be determined.
Shown below are amounts extracted from the financial statements (in thousands).

Instructions
Explain to Jim why his banker may not want to give the company an operating line of credit. Begin your analysis by discussing how ratios that were covered in this chapter have changed in 2015 compared with 2014 and discuss possible underlying reasons for these changes.

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015 2014 Statement of Financial Position Information Cash Accounts recetvable Merchandise inventory Property, plant, and equlpment, net Accounts payable Bank loan, non-current Common shares $10,000 5,000 7,500 50,000 16,550 30,000 13,000 12,950 $2,000 20,000 30,000 60,000 30,930 40,000 13,000 28,070 Retalned earnings Income Statement Information Sales Cost of goods sold Operating expenses Interest expense Income tax expense $100,000 50,000 26,000 2,400 6,480 $50,000 20,000 10,000 1,500 5,550