USING COMMON SIZE DATA FOR CREDIT ANALYSIS You are the credit manager for Super Supply, Inc. One of your sales staff has made a

$60,000 credit sale to Tim’s Technology, 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 Tim’s Technology:

For the Years 2005–2009 Industry Tim’s Technology Average annual sales growth 12.6% 16.8%

Average annual operating income growth 11.2% 10.2%

Average annual net income growth 15.3% 10.6%

Average annual asset growth 9.9% 13.9%

Average debt to equity ratio 0.36 0.29 Average current ratio 4.12 3.88 Average inventory turnover ratio 2.61 2.19 Average accounts receivable turnover ratio 3.89 4.11 For Tim’s Technology, you have the following data for the year ended December 31, 2009:

Sales revenue $4,120,000 Net income 367,000 Total assets 3,752,000 Current ratio 1.79 Debt-to-equity ratio 0.42 Inventory turnover ratio 1.83 Accounts receivable turnover ratio 3.71 The salesperson believes that Tim’s Technology would order about $240,000 per year of materials that would provide a gross margin of $40,000 to Super Supply if reasonable credit terms could be arranged.

Required:

State whether or not you would grant authorization for Tim’s Technology to purchase on credit and support your decision.