Ferro Corporation has sales of approximately $10, 00,000 per year. Ferro requires a short term loan of $2, 00,000 to finance its working capital requirements. Two banks are considering Ferror,s loan request but each bank requires certain minimum conditions be satisfied. Bank SCB requires at least a 20% gross margin on sales, and Bank HSBC requires a 3:1 current ratio. The following information is available for Ferro for the current year:

• Sales returns and allowances are 15% of sales.

• Purchase returns and allowances are 5% of purchases.

• Sales discounts are 3% of sales.

• Purchase discounts are 2% of purchases.

• Ending inventory is $1,48,000.

• Cash is 15% of accounts receivable.

• Credit terms to Ferros customers are 40 days.

• Credit terms Ferro receives from its suppliers are 120 days.

• Purchases for the year are $8, 00,000.

• Ending inventory is 48% greater than beginning inventory.

• Accounts payable are the only current liability.

Required:

Assess whether Ferro Corporation meets the credit constraint for a loan from either or both banks. Show computations.