eBook Problem 9-19 Joseph Berio is a loan officer with the First Bank of Tennessee. Red Brick, Inc., a major producer of masonry products, has

eBook

Problem 9-19

Joseph Berio is a loan officer with the First Bank of Tennessee. Red Brick, Inc., a major producer of masonry products, has applied for a short-term loan. Red Brick supplies building material throughout the southern states, with brick plants located in Tennessee, Alabama, Georgia, and Indiana. The firms income statement and balance sheet are given below. The third table presents both a ratio analysis of Red Bricks previous years financial statements and the industry averages of the ratios.

Red Brick Income Statement
(for the period ending December 12/31/20X1)
Sales	$	215,000,000
Cost of goods sold		145,000,000
Administrative expenses		28,000,000
Operating income	$	42,000,000
Interest expense		12,000,000
Taxes		200,000
Net income	$	29,800,000

Red Brick Balance Sheet as of 12/31/20X2
Assets				Liabilities and Stockholders Equity
Cash	$	400,000		Accounts payable	$	35,000,000
Accounts receivable		40,000,000	^*	Notes payable		9,000,000
Inventory		81,600,000		Long-term debt		44,000,000
Plant and equipment		138,000,000		Stockholders equity		172,000,000
	$	260,000,000			$	260,000,000

_{^*50% of sales are on credit.}
_{Previous years inventory was $70,900,000.}

	Companys Ratios	Industry
	(Previous Year)	Average
Current ratio	2.8:1	2.3:1
Quick ratio	0.9:1	0.9:1
Inventory turnover	4.0x	4.6x
Average collection period	84 days	52 days
Debt ratio (debt/total assets)	30%	34%
Times-interest-earned	3.5	3.6
Return on equity	18.8%	14.3%
Return on assets	12.4%	10.2%
Operating profit margin	15.0%	15.1%
Net profit margin	10.7%	9.0%

To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year ratios and industry averages. Assume there are 365 days in a year. Do not round intermediate calculations. Round your answers to two decimal places.

Current ratio of times is -Select-higher thanlower thanequal toItem 2 the industry average and -Select-higher thanlower thanequal toItem 3 the ratio in the previous year.

Quick ratio of times is -Select-higher thanlower thanequal toItem 5 the industry average and -Select-higher thanlower thanequal toItem 6 the ratio in the previous year.

Inventory turnover ratio of is -Select-higher thanlower thanequal toItem 8 the industry average and -Select-higher thanlower thanequal toItem 9 the ratio in the previous year.

Average collection period of days is -Select-higher thanlower thanequal toItem 11 the industry average and -Select-higher thanlower thanequal toItem 12 the ratio in the previous year.

Debt ratio of % is -Select-higher thanlower thanequal toItem 14 the industry average and -Select-higher thanlower thanequal toItem 15 the ratio in the previous year.

Times-interest-earned ratio of is -Select-higher thanlower thanequal toItem 17 the industry average and -Select-higher thanlower thanequal toItem 18 the ratio in the previous year.

Return on equity ratio of % is -Select-higher thanlower thanequal toItem 20 the industry average and -Select-higher thanlower thanequal toItem 21 the ratio in the previous year.

Return on assets ratio of % is -Select-higher thanlower thanequal toItem 23 the industry average and -Select-higher thanlower thanequal toItem 24 the ratio in the previous year.

Operating profit margin ratio of % is -Select-higher thanlower thanequal toItem 26 the industry average and -Select-higher thanlower thanequal toItem 27 the ratio in the previous year.

Net profit margin ratio of % is -Select-higher thanlower thanequal toItem 29 the industry average and -Select-higher thanlower thanequal toItem 30 the ratio in the previous year.