Refer to the financial data for the Bao Corporation in Problem 13-13. You have just been hired as a loan officer at the Sussex Bank. Your supervisor has given you a file containing a request from Bao Corporation for a $20,000 five year loan. Use the financial statements for the Bao Cor¬ poration to answer the questions that follow.

Lui Chun who just a year ago was appointed president of Bao Corp. informs you that although the company has had some problems in the past, they are turning things around, as evidenced by the 17% increase in sales and the improved earnings results between last year and this year. Ms. Chun feels that, with her leadership and the im¬ proved technology (which will come from the equipment that the $20,000 will allow the company to purchase), profits will be even stronger in the future.
Wanting to succeed in your first assignment, you decide to gather all the neces¬ sary information for a complete analysis. You determine that the following ratios are typical for the industry in which Bao Corporation operates:

Required
a. Compute each of the above ratios for Bao Corporation.
b. Summarize the results of these ratios.
c. Based on this analysis, would you recommend that the loan be approved?

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Current ratio Acid-test (quick) ratio Accounts receivable turnover Inventory turnover Return on assets Debt-to-equity ratio Times interest earned 2.6 to 1 1.2 to 1 8.5 times 6.2 times 12.1% 0.68 to 1 6.8