Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested

a $4,000,000 loan, to assess the firms financial leverage and financial risk. On the

basis of the debt ratios for Creek, along with the industry averages (see the top of

the next page) and Creeks recent financial statements (following), evaluate and

recommend appropriate action on the loan request.

Creek Enterprises Income Statement for the Year Ended December 31, 2015

Sales revenue $30,000,000 Less: Cost of goods sold 21,000,000 Gross profits $ 9,000,000 Less: Operating expenses Selling expense $ 3,000,000 General and administrative expenses 1,800,000 Lease expense 200,000 Depreciation expense 1,000,000 Total operating expense $ 6,000,000 Operating profits $ 3,000,000 Less: Interest expense 1,000,000 Net profits before taxes $ 2,000,000 Less: Taxes (rate 5 40%) 800,000 Net profits after taxes $ 1,200,000 Less: Preferred stock dividends 100,0000 Earnings available for common stockholders $ 1,100,000