P3-18 Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry averages (see the top of the next page) and Creek's recent financial statements (following), evaluate and recommend appropriate action on the loan request. Creek Enterprises Income Statement for the Year Ended December 31, 2015 Sales revenue Less: Cost of goods sold 30,000,000 21,000,000 $9,000,000 Gross profits Less: Operating expenses 3,000,000 1,800,000 200,000 1,000,000 $6,000,000 3,000,000 1,000,000 2,000,000 800,000 1,200,000 100,0000 $ 1,100,000 Selling expense General and administrative expenses Lease expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate-40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stock holders