Using Common Size Data for Credit Analysis}

You are the credit manager for Carmichael Supply Company. One of your sales staff has made a \(\$ 50,000\) credit sale to Zizes Electronics, a manufacturer of small computers. Your responsibility is to decide whether to approve the sale. You have the following data for the computer industry and Zizes:

The salesperson believes that Zizes would order about \(\$ 200,000\) per year of materials that would provide a gross margin of \(\$ 35,000\) to Carmichael if reasonable credit terms could be arranged.
\section*{Required:}
State whether or not you would grant authorization for Zizes to purchase on credit and support your decision.

Transcribed Image Text:

For the Years 2014-2018 Industry Zizes Electronics Average annual sales growth 13.4% 17.6% Average annual operating income growth 10.8% 9.7% Average annual net income growth 14.4% 9.9% Average annual asset growth 10.3% 14.2% Average debt-to-equity ratio 0.32 0.26 Average current ratio 4.04 3,71 Average inventory turnover ratio 2.53 2.06 Average accounts receivable turnover ratio 3.95 4.18 For Zizes, you have the following data for the year ended December 31, 2018: Sales revenue Net income Total assets Current ratio Debt-to-equity ratio Inventory turnover ratio Accounts receivable turnover ratio $3,908,000 $359.000 $3,626.000 1.82 0.37 1.79 3.62