(Financial analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $602,000 for the year just ended, and its total assets was $408,060. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit totaling $95,000 from the firm's bank. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to replace a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the popup window: . Mike Ameen, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the financial ratios for 2018 corresponding to the industry norms provided in the popup window: E. b. Which of the ratios reported in the industry norms do you feel should be most crucial in determining whether the bank should extend the line of credit? c. Prepare Jarmon's statement of cash flow for the year ended December 31, 2018. d. Use the information provided by the financial ratios and the cash flow statement to decide if you would support making the loan. a. Calculate the financial ratios for 2018 corresponding to the industry norms provided in the popup window: The current ratio is X. (Round to two decimal places.) T.P. Jarmon Company, Balance Sheet for 12/31/2017 and 12/31/2018 ASSETS 2017 2018 Cash $ 15,000 13,930 Marketable securities 6,000 6,150 Accounts receivable 42,000 32,970 Inventory 51,000 1,200 83,600 1,010 Prepaid rent Total current assets $ $ 115,200 286,000 137,660 270,400 Net plant and equipment $ 401,200 $ 408,060 Total assets LIABILITIES AND OWNERS' EQUITY $ 48,000 $ 57,010 Accounts payable Notes payable 15,000 6,000 12,970 4,900 Accruals Total current liabilities $ 69,000 $ 74,880 Long-term debt 160,000 172,200 138,660 194,520 Common stockholders' equity $ 401,200 $ 408,060 Total liabilities and equity Common stockholders' equity 172,200 194,520 $ 401,200 $ 408,060 Total liabilities and equity T.P. Jarmon Company, Income Statement for the Year Ended 12/31/2018 Sales (all credit) $ 602,000 464,000 Less cost of goods sold Gross profit Less operating and interest expenses $ 138,000 General and administrative $ 30,300 Interest 10,700 29,000 Depreciation $ Total 70,000 Earnings before taxes $ 68,000 14,280 Less taxes Net income available to common stockholders $ 53,720 31,400 Less cash dividends $ 22,320 Change in retained earnings RATIO Current ratio Acid-test ratio Debt ratio Times interest earned Average collection period Inventory turnover (based on cost of goods sold) Return on common equity Operating return on assets Operating profit margin Total asset turnover Fixed asset turnover NORM 1.80 0.90 0.47 9.00 19.00 7.07 16.2 % 16.5% 13.8% 1.20 1.80
