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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	$	198,000,000
Cost of goods sold		146,000,000
Administrative expenses		32,000,000
Operating income	$	20,000,000
Interest expense		12,000,000
Taxes		700,000
Net income	$	7,300,000

Red Brick Balance Sheet as of 12/31/20X2
Assets				Liabilities and Stockholders Equity
Cash	$	400,000		Accounts payable	$	40,000,000
Accounts receivable		38,000,000	*	Notes payable		14,000,000
Inventory		75,900,000		Long-term debt		50,000,000
Plant and equipment		134,000,000		Stockholders equity		144,300,000
	$	248,300,000			$	248,300,000
*60% of sales are on credit.
Previous years inventory was $55,800,000.

	Companys Ratios	Industry
	(Previous Year)	Average
Current ratio	1.9:1	2.0:1
Quick ratio	0.7:1	0.8:1
Inventory turnover	4.9x	4.6x
Average collection period	72 days	47 days
Debt ratio (debt/total assets)	32%	41%
Times-interest-earned	1.7	3.6
Return on equity	5.3%	13.9%
Return on assets	3.1%	10.0%
Operating profit margin	7.8%	15.0%
Net profit margin	2.8%	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 than lower than equal to Item 2 the industry average and -Select-higher than lower than equal to Item 3 the ratio in the previous year.

Quick ratio of times is -Select-higher than lower than equal to Item 5 the industry average and -Select-higher than lower than equal to Item 6 the ratio in the previous year.

Inventory turnover ratio of is -Select-higher than lower than equal to Item 8 the industry average and -Select-higher than lower than equal to Item 9 the ratio in the previous year.

Average collection period of days is -Select-higher than lower than equal to Item 11 the industry average and -Select-higher than lower than equal to Item 12 the ratio in the previous year.

Debt ratio of % is -Select-higher than lower than equal to Item 14 the industry average and -Select-higher than lower than equal to Item 15 the ratio in the previous year.

Times-interest-earned ratio of is -Select-higher than lower than equal to Item 17 the industry average and -Select-higher than lower than equal to Item 18 the ratio in the previous year.

Return on equity ratio of % is -Select-higher than lower than equal to Item 20 the industry average and -Select-higher than lower than equal to Item 21 the ratio in the previous year.

Return on assets ratio of % is -Select-higher than lower than equal to Item 23 the industry average and -Select-higher than lower than equal to Item 24 the ratio in the previous year.

Operating profit margin ratio of % is -Select-higher than lower than equal to Item 26 the industry average and -Select-higher than lower than equal to Item 27 the ratio in the previous year.

Net profit margin ratio of % is -Select-higher than lower than equal to Item 29 the industry average and -Select-higher than lower than equal to Item 30 the ratio in the previous year.