1575.0 107.1 You are working as a credit analyst at All Parts Inc. (a large wholesaler of electronics parts). The sales team has been working for some time to acquire a new client, Measure It Corp (a large manufacturer of measurement devices) and is eager to do what it takes to close a deal and increase sales accordingly. The head of the credit department asked you to conduct a credit analysis of Measure It Corp to determine its creditworthiness as it is common in the electronics parts business to offer credit terms to clients. However, All Parts Inc. has seen over the years its fair share of clients ending not paying and the responsibility for such losses falls upon the credit department, and unfortunately the sales team does not care much about that. Usually, if the prospective client financial strength and performance are broadly in line with industry standards or better, the credit department approves the client. You have been provided with the below balance sheet and income statements. Measure It Corp December 31 Balance Sheets Measure It Corp Income Statements for Years Ending December 31 (in millions of dollars) (in millions of dollars) 2019 2018 2019 2018 Assets Cash and equivalents 10.0 10.0 Net sales $3,150.0 $3,000.0 Accounts receivable 630.0 600.0 Costs of goods sold except depreciation 2,079.0 2,010,0 Inventories 945.0 900.0 Depreciation and amortization 157.5 150.0 Total current assets $1,585,0 $1,510.0 Other operating expenses 346.5 330.0 Net plant and equipment 1500.0 Earnings before interest and taxes (EBIT) $567.0 $510.0 Total assets $3,160.0 $3,010.0 Less interest expense 79.7 815 Earnings before taxes (EBT) $487.3 $428.5 Liabilities and equity Taxes 121.8 Accounts payable 207.9 2010 Net Income $365.4 $3213 Notes payable 229.2 259.0 Accruals 157.5 150.0 Additional Information Total current liabilities $594.6 $610.0 Common share dividends $200.0 $150.0 Long-term bonds 1100.0 1100.0 Addition to retained earnings $165.4 $1713 Total Liabilities $1,694.6 $1,710.0 25% 25% Common stock 500.0 500.0 Retained earnings 965.4 800.0 Total common equity $1,465.4 $1,300.0 Total liabilities and equity $3,160.0 $3,010.0 First (6 points), you need to: i) calculate the three below noted ratios for each year available (with one decimal). ii) determine if the trend for each ratio is a financial strength improvement, not much change or a deterioration, ii) compare each ratio to the industry benchmark to determine for each ratio the extent to which is it an indication of superior, average or inferior financial strength versus the industry. Current ratio: industry benchmark of 3.0; Debt to assets: industry benchmark of 40.0%; Net profit margin: industry benchmark of 12.0%. Second (three points), you need to a) calculate the average payable period (in number of days) for each year available, b) compare it to the industry standard of 30 days, and c) discuss the extent to which the time taken by Measure It Corp to pay its invoices is compatible with the typical terms offered by All Parts Inc. which is net 30. Finally (one point), you summarize your analysis with a recommendation to authorize or not Measure It Corp as new client. Your recommendation needs to be supported by a concise rationale using the outcome of the above first and second step of the analysis. Tax rate
