Comparison with Industry Averages Heartland 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 Heartland 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 Heartland’s most recent financial statements as part of the loan package.

The industry in which Heartland 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.

Heartland’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:

The financial statements to be submitted to the bank in connection with the loan follow.

Required 1. Prepare a columnar report for the controller of Heartland Inc. comparing the industry averages for the ratios published by the trade association with the comparable ratios for Heartland. For Heartland, compute the ratios as of December 31, 2008, or for the year ending December 31, 2008, whichever is appropriate.
2. Briefly evaluate Heartland’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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Ratio Current ratio Acid-test (quick) ratio Accounts receivable turnover Inventory turnover Debt-to-equity ratio Industry Average 1.23 0.75 33 times 29 times 0.53 8.65 times 6.57% 1.95 times Times interest earned Return on sales Asset turnover Return on assets 12.81% Return on common stockholders' equity 17.67%