I have to calculate:
| Acid-test ratio | |
| Debt ratio | |
| Times interest earned | |
| Average collection period | |
| Inventory turnover (based on cost of goods sold) | |
| Return on equity | |
| Operating return on assets | |
| Operating profit margin | |
| Total asset turnover | |
| Fixed asset turnover |
(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 $85,000. 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. C X Data table Ratio Norms Current ratio 1.80 0.90 Acid-test ratio Debt ratio 50.0% Times interest earned 10.00 Average collection period 20.0 Inventory turnover (based on cost of goods sold) 7.00 Return on equity 12.0% Operating return on assets 16.8% Operating profit margin 14.0% Total asset turnover 1.20 Fixed asset turnover 1.80 (Click on the icon in order to copy its contents into a spreadsheet.) Print Done T. P. Jarmon Company Balance Sheets Cash Marketable securities Accounts receivable Inventory Prepaid rent Total current assets Net plant and equipment Total assets Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stockholders' equity Total liabilities and owners' equity (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 2012 $14,900 6,010 42,000 50,900 1,190 $115,000 285,900 $400,900 $48,000 14,900 5,990 $68,890 160,100 171,910 $400,900 2012 $(30,000) 2013 $14,000 6,200 32,900 84,000 1,110 $138,210 269,900 $408,110 $57,100 12,900 5,000 $75,000 149,900 183,210 $408,110 $600,000 (460,000) $140,000 2013 Total assets Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stockholders' equity Total liabilities and owners' equity (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 Interest Depreciation 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.) $400,900 $48,000 14,900 5,990 $68,890 160,100 171,910 $400,900 2012 $(30,000) (9,900) (29,900) $408,110 $57,100 12,900 5,000 $75,000 149,900 183,210 $408,110 $600,000 (460,000) $140,000 $(69,800) $70,200 (27,000) $43,200 (31,800) $11,400 2013
