Midwest Inc. is a medium-size company that has been in business for 20 years. The industry has become very competitive in the last few years, and Midwest has decided that it must grow if it is going to survive. It has approached the bank for a sizable five-year loan, and the bank has requested Midwests most recent financial statements as part of the loan package.

The industry in which Midwest operates of approximately 20 companies relatively equal in size. The trade association to which all the competitors belong publishes an annual survey of the industry, including industry averages for selected ratios for the competitors. All companies voluntarily submit their statements to the association for this purpose.

Midwests controller is aware that the bank has access to this survey and is very concerned about how the company fared this past year compared with the rest of the industry. The ratios included in the publication and the averages for the past year are as follows:

Ratio	Industry Average
Current ratio	1.20
Acid-test (quick) ratio	0.50
Debt-to-equity ratio	0.50
Times Interest earned	25 times
Returns on sales	3%
Asset Turnover	3.50 times
Inventory Turnover	35 times
Return on common stockholders equity	20%

Midwest Inc.

Comparative Statements of Financial Position

(thousands omitted)

	December 31, 2017	December 31, 2016
Assets
Current Assets:
Cash	$1,790	$2,600
Marketable Securities	1,200	1,700
Accounts Receivable, net of allowances	400	600
Inventories	8,700	7,400
Prepaid items	350	400
Total Current assets	$12,440	$12,700

	December 31, 2017	December 31, 2016
Long-term investments	$560	$400
Property, plant, and equipment:
Land	$12,000	$12,000
Buildings and equipment, net of accumulated depreciation	87,000	82,900
Total property, plant, and equipment	$99,000	$94,900
Total assets	$112,000	$108,000
Liabilities and Stockholders Equity
Current Liabilities:
Short-term notes	$800	$600
Accounts payable	6,040	6,775
Salaries and wages payable	1,500	1,200
Income taxes payable	1,560	1,025
Total current liabilities	$9,900	$9,600
Long-term bonds payable	$36,000	$36,000
Stockholders equity:
Common stock, no par	$50,000	$50,000
Retained earnings	16,100	12,400
Total stockholders equity	$66,100	$62,400
Total liabilities and stockholders equity	$112,000	108,000

Midwest Inc.

Statement of Income and Retained Earnings

For the Year Ended December 31, 2017

(thousands omitted)

Sales revenue	$420,500
Cost of Goods sold	(300,000)
Gross profit	$120,500
Selling, general, and administrative expenses	(85,000)
Income before interest and taxes	$35,500
Interest expense	(8,600)
Income before taxes	$26,900
Income tax expense	(12,000)
Net Income	$14,900
Retained earnings, January 1, 2017	12,400
	$27,300
Dividends paid on common stock	(11,200)
Retained earnings, December 31, 2017	$16,100

Required

Prepare a columnar report for the controller of Midwest Inc. comparing the industry averages for the ratios published by the trade association with the comparable ratios for Midwest. For Midwest, compute the ratios as of December 31, 2017, or for the year ending December 31, 2017, whichever is appropriate.

Briefly evaluate Midwests ratios relative to the industry averages.

Do you think that the bank will approve the loan? Explain your answer.