(Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,000 for the year just ended, and its total assets exceeded $500,000. 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 from the firm's bank totaling $80,000. 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 supplant 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 following tables: Michigan, was assigned the task of analyzing Jarmon's loan request. Jan Fama, associate credit analyst for the Merchants National Bank of Midland, a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. T. P. Jarmon Company Balance Sheets Cash $15,100 Marketable securities 6,010 Accounts receivable 41,900 Inventory 51,000 Prepaid rent 1,200 Total current assets $115,210 Net plant and equipment 285,900 Total assets $401,110 Accounts payable $48,100 Notes payable 14,900 Accruals 5,990 Total current liabilities $68,990 Long-term debt 160,100 Common stockholders' equity 172,020 Total liabilities and owners' equity $401,110 (Click on the icon in order to copy its contents into a spreadsheet.) T. P. Jarmon Company Income Statement for 2013 Sales (all credit) Less: Cost of goods sold Gross profit Less: Operating and interest expenses General and administrative $(30,000) Interest (10,100) Depreciation (29,900) Total Earnings before taxes Less: Taxes Net income available to common stockholders Less: Cash dividends Change in retained earnings (Click on the icon in order to copy its contents into a spreadsheet.) 2012 2012 2013 $13,900 6,190 32,900 83,900 1,100 $137,990 270,000 $407,990 $57,000 13,000 5,010 $75,010 150,000 182,980 $407,990 $600,000 (460,000) $140,000 $(70,000) $70,000 (27,000) $43,000 (31,700) $11,300 2013 a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is 1.84. (Round to two decimal places.) T. P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) T. P. Jarmon's debt ratio is 55.2%. (Round to one decimal place.) T. P. Jarmon's times interest earned is 8.09 times. (Round to two decimal places.) T. P. Jarmon's average collection period is 20.0 days. (Round to one decimal place.) T. P. Jarmon's inventory turnover is 5.48 times. (Round to two decimal places.) T. P. Jarmon's return on equity is 23.6 %. (Round to one decimal place.) T. P. Jarmon's operating return on assets is 19.6 %. (Round to one decimal place.) T. P. Jarmon's operating profit margin is 13.3%. (Round to one decimal place.) T. P. Jarmon's total asset turnover is 1.47. (Round to two decimal places.) T. P. Jarmon's fixed asset turnover is 2.22. (Round to two decimal places.) b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? (Select the best choice below.) (Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,000 for the year just ended, and its total assets exceeded $500,000. 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 from the firm's bank totaling $80,000. 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 supplant 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 following tables: Michigan, was assigned the task of analyzing Jarmon's loan request. Jan Fama, associate credit analyst for the Merchants National Bank of Midland, a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. T. P. Jarmon Company Balance Sheets Cash $15,100 Marketable securities 6,010 Accounts receivable 41,900 Inventory 51,000 Prepaid rent 1,200 Total current assets $115,210 Net plant and equipment 285,900 Total assets $401,110 Accounts payable $48,100 Notes payable 14,900 Accruals 5,990 Total current liabilities $68,990 Long-term debt 160,100 Common stockholders' equity 172,020 Total liabilities and owners' equity $401,110 (Click on the icon in order to copy its contents into a spreadsheet.) T. P. Jarmon Company Income Statement for 2013 Sales (all credit) Less: Cost of goods sold Gross profit Less: Operating and interest expenses General and administrative $(30,000) Interest (10,100) Depreciation (29,900) Total Earnings before taxes Less: Taxes Net income available to common stockholders Less: Cash dividends Change in retained earnings (Click on the icon in order to copy its contents into a spreadsheet.) 2012 2012 2013 $13,900 6,190 32,900 83,900 1,100 $137,990 270,000 $407,990 $57,000 13,000 5,010 $75,010 150,000 182,980 $407,990 $600,000 (460,000) $140,000 $(70,000) $70,000 (27,000) $43,000 (31,700) $11,300 2013 a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is 1.84. (Round to two decimal places.) T. P. Jarmon's acid-test ratio is 0.72. (Round to two decimal places.) T. P. Jarmon's debt ratio is 55.2%. (Round to one decimal place.) T. P. Jarmon's times interest earned is 8.09 times. (Round to two decimal places.) T. P. Jarmon's average collection period is 20.0 days. (Round to one decimal place.) T. P. Jarmon's inventory turnover is 5.48 times. (Round to two decimal places.) T. P. Jarmon's return on equity is 23.6 %. (Round to one decimal place.) T. P. Jarmon's operating return on assets is 19.6 %. (Round to one decimal place.) T. P. Jarmon's operating profit margin is 13.3%. (Round to one decimal place.) T. P. Jarmon's total asset turnover is 1.47. (Round to two decimal places.) T. P. Jarmon's fixed asset turnover is 2.22. (Round to two decimal places.) b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? (Select the best choice below.)