Midwest Inc. is a medium-size company that has been in business for 20 years. The industry has become very competitive in the last few years, and Midwest has decided that it must grow if it is going to survive. It has approached the bank for a sizable five-year loan, and the bank has requested Midwest's most recent financial statements as part of the loan package. The industry in which Midwest operates consists of approximately 20 companies relatively equal in size. The trade association to which all of the competitors belong publishes an annual survey of the industry, including industry averages for selected ratios for the competitors. All companies voluntarily submit their statements to the association for this purpose. Midwest's controller is aware that the bank has access to this survey and is very concerned about how the company fared this past year compared with the rest of the industry. The ratios included in the publication and the averages for the past year are as follows:
Industry
Ratio Average
Current ratio.....................................................1.20
Acid-test (quick) ratio .........................................0.50
Inventory turnover .......................................35 times
Debt-to-equity ratio ...........................................0.50
Times interest earned ....................................25 times
Return on sales ...................................................3%
Asset turnover ...........................................3.5 times
Return on common stockholders' equity .....................20%
The financial statements to be submitted to the bank in connection with the loan follow.
Midwest Inc.
Statement of Income and Retained Earnings
For the Year Ended December 31, 2012
(thousands omitted)
Sales revenue........................................................$ 420,500
Cost of goods sold..................................................(300,000)
Gross profit.........................................................$ 120,500
Selling, general, and administrative expenses....................(85,000)
Income before interest and taxes.................................$ 35,500
Interest expense.......................................................(8,600)
Income before taxes................................................$ 26,900
Income tax expense.................................................(12,000)
Net income..........................................................$ 14,900
Retained earnings, January 1, 2012................................12,400
$ 27,300
Dividends paid on common stock................................(11,200)
Retained earnings, December 31, 2012.........................$ 16,100

Required
1. Prepare a columnar report for the controller of Midwest Inc. comparing the industry averages for the ratios published by the trade association with the comparable ratios for Midwest.
For Midwest, compute the ratios as of December 31, 2012, or for the year ending December
31, 2012, whichever is appropriate.
2. Briefly evaluate Midwest's ratios relative to the industry averages.
3. Do you think that the bank will approve the loan? Explain your answer.

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Midwest Inc. Comparative Statements of Financial Position (thousands omitted) December 31, 2012 December 31,2011 Assets Current assets: Cash Marketable securities Accounts receivable, net of allowances Inventories $ 1,790 1,200 400 8,700 $ 2,600 1,700 600 7,400 December 31, 2012 December 31, 2011 400 S 12,700 $ 400 Prepaid items 350 $ 12,440 S 560 Total current assets Long-term investments Property, plant, and equipment Land Buildings and equipment, net of $ 12,000 $ 12,000 accumulated depreciation Total property, plant, and equipment 87,000 $ 99,000 $112,000 82,900 $ 94,900 $108,000 Total assets Liabilities and Stockholders' Equity Current liabilities Short-term notes Accounts payable Salaries and wages payable Income taxes payable $ 800 6,040 1,500 1,560 $ 9,900 S 36,000 S 600 6,775 1,200 1,025 $ 9,600 $ 36,000 Total current liabilities Long-term bonds payable Stockholders' equity: Common stock, no par Retained eanings S 50,000 16,100 $ 66,100 $112,000 $ 50,000 12,400 $ 62,400 $108,000 Total stockholders' equity Total liabilities and stockholders' equity