For this question, you need to answer in a Word document with your name and post the file response here (in the mid-term on Blackboard). Your answers need to be explicit (i.e. show your calculations).

You are working as a credit analyst at All Parts Inc. (a large wholesaler of electronics parts). The sales team has been working for some time to acquire a new client, Measure It Inc. (a large manufacturer of measurement devices) and is eager to do what it takes to close a deal and increase sales accordingly. The head of the credit department asked you to conduct a credit analysis of Measure It Inc. to determine its creditworthiness as it is common in the electronics parts business to offer credit terms to clients. However, All Parts Inc. has seen over the years its fair share of clients ending not paying and the responsibility for such losses falls upon the credit department, and unfortunately the sales team does not care much about that. Usually, if the prospective client financial strength and performance are broadly in line with industry standards or better, the credit department approves the client.

You have been provided with the below balance sheet and income statements.

First (6 points), you need to: i) calculate the three below noted ratios for each year available (with one decimal), ii) determine if the trend for each ratio is a financial strength improvement, not much change or a deterioration, iii) compare each ratio to the industry benchmark to determine for each ratio the extent to which is it an indication of superior, average or inferior financial strength versus the industry.

Current ratio: industry benchmark of 3.0;

Debt to assets: industry benchmark of 40.0%;

Net profit margin: industry benchmark of 12.0%.

Second (three points), you need to a) calculate the average payable period (in number of days) for each year available, b) compare it to the industry standard of 30 days, and c) discuss the extent to which the time taken by Measure It Inc. to pay its invoices is compatible with the typical terms offered by All Parts Inc. which is net 30.

Finally (one point), you summarize your analysis with a recommendation to authorize or not Measure It Inc. as new client. Your recommendation needs to be supported by a concise rationale using the outcome of the above first and second step of the analysis.