COMPREHENSIVE PROBLEMS 42. order from a new purchaser, Wizard Industries. For approximately 12 years, Wizard has been installing security and water sprinkler systems in office buildings The salespeople have been well trained, as they have also presented you with the following financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Wizard's more aggressive selling approach. The sales team is eager for you to grant credit to Wizard Industries. Of course, you must do a complete analysis noting any ratios that are cause for concern or a further explanation. You are the manager of a credit department. The sales team has presented a large require What is your recommendation? Do you grant credit? WIZARD INDUSTRIES Income Statements Year Ended 20XV 20XW 20XX $1,841,300 $ 1,542,700 1,397,400 $1,605,100 1,258,900 346,200 265,650 Sales (all on credit) Cost of goods sold Gross profit..... Selling and administrative expense.... 1,174,800 367,900 443,900 294,200 256,850 16,000 57,700 14,400 172,650 14,000 Amortization 66,550 Operating profit Interest expense . 50,100 7,600 2,200 50,550 65,100 1,450 122,100 Earnings before taxes Taxes..... 27,100 $ 350 Earnings available to common shareholders...... $ 95,000 5,400 $ 1,100 Dividends declared $ 60,000 $ 65,000 $70,000 WIZARD INDUSTRIES Balance Sheet December 31, b u20XX fdzzonAdoeb 20XW 20XV Assets Cash.. $ 14,900 $ 24,700 $ 11,500 Marketable securities 7,000 7,000 7,000 Accounts receivable. 410,800 361,800 297,300 Inventory Prepaid expenses. 289,900 5,500 611,200 184,300 256,600 330,000 800 5,200 694,500 Total current assets 724,300 Net plant and equipment 172,900 162,000 25,400 30,600 $826,100 Goodwill 28,200 Total assets $925,400 $881,900 Liabilities and Shareholders' Equity Accounts payable. $209,700 $196,700 $145,900 169,000 202,000 254,000 Bank loan 14,400 393,100 23,700 422,400 3,700 403,600 Accrued expenses Total current liabilities 141,000 534,100 181,600 604,000 225,800 629,400 Long-term debt Total liabilities 14,000 14,000 14,000 Common stock. 307,400 321,400 278,000 238,500 Retained earnings 292,000 252,500 Total shareholders' equity Total liabilities and shareholders' equity $826,100 $925,400 $881,900 Selected Industry Ratios 5.8% Profit margin Return on assets (investment) Return on equity Receivables turnover. 8.1% 20.3% 6.3x 58.3 days Average collection period. 11Inventory turnover. Capital asset turnover 4.3x 8.0x 1.6 Current ratio. 1.7x Total asset turnover. 1.1 Quick ratio Debt to total assets. 60 % 4.3x Times interest earned in lou Robert Watson COMPREHENSIVE PROBLEMS 42. order from a new purchaser, Wizard Industries. For approximately 12 years, Wizard has been installing security and water sprinkler systems in office buildings The salespeople have been well trained, as they have also presented you with the following financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Wizard's more aggressive selling approach. The sales team is eager for you to grant credit to Wizard Industries. Of course, you must do a complete analysis noting any ratios that are cause for concern or a further explanation. You are the manager of a credit department. The sales team has presented a large require What is your recommendation? Do you grant credit? WIZARD INDUSTRIES Income Statements Year Ended 20XV 20XW 20XX $1,841,300 $ 1,542,700 1,397,400 $1,605,100 1,258,900 346,200 265,650 Sales (all on credit) Cost of goods sold Gross profit..... Selling and administrative expense.... 1,174,800 367,900 443,900 294,200 256,850 16,000 57,700 14,400 172,650 14,000 Amortization 66,550 Operating profit Interest expense . 50,100 7,600 2,200 50,550 65,100 1,450 122,100 Earnings before taxes Taxes..... 27,100 $ 350 Earnings available to common shareholders...... $ 95,000 5,400 $ 1,100 Dividends declared $ 60,000 $ 65,000 $70,000 WIZARD INDUSTRIES Balance Sheet December 31, b u20XX fdzzonAdoeb 20XW 20XV Assets Cash.. $ 14,900 $ 24,700 $ 11,500 Marketable securities 7,000 7,000 7,000 Accounts receivable. 410,800 361,800 297,300 Inventory Prepaid expenses. 289,900 5,500 611,200 184,300 256,600 330,000 800 5,200 694,500 Total current assets 724,300 Net plant and equipment 172,900 162,000 25,400 30,600 $826,100 Goodwill 28,200 Total assets $925,400 $881,900 Liabilities and Shareholders' Equity Accounts payable. $209,700 $196,700 $145,900 169,000 202,000 254,000 Bank loan 14,400 393,100 23,700 422,400 3,700 403,600 Accrued expenses Total current liabilities 141,000 534,100 181,600 604,000 225,800 629,400 Long-term debt Total liabilities 14,000 14,000 14,000 Common stock. 307,400 321,400 278,000 238,500 Retained earnings 292,000 252,500 Total shareholders' equity Total liabilities and shareholders' equity $826,100 $925,400 $881,900 Selected Industry Ratios 5.8% Profit margin Return on assets (investment) Return on equity Receivables turnover. 8.1% 20.3% 6.3x 58.3 days Average collection period. 11Inventory turnover. Capital asset turnover 4.3x 8.0x 1.6 Current ratio. 1.7x Total asset turnover. 1.1 Quick ratio Debt to total assets. 60 % 4.3x Times interest earned in lou Robert Watson