RPI, Inc. is a manufacturer and retailer of high-quality sports clothing and gear. The firm was started several years ago by a group of serious outdoor enthusiasts who felt there was a need for a firm that could provide quality products at reasonable prices. The result was RPI, Inc.

Since its inception, the firm has been profitable with sales that last year totaled $700,000 and assets in excess of $400,000. The firm now finds its growing sales outstrip its ability to finance its inventory needs. The firm now estimates that it will need a line of credit of

$100,000 during the coming year. To finance this funding requirement, the management plans to seek a line of credit with its bank.

The firms most recent financial statements were provided to its bank as support for the firms loan request. Joanne Peebie, a loan analyst trainee for the Morristown Bank and Trust, has been assigned the task of analyzing the firms loan request.

	RPI. Inc.	Industry
Current ratio	2.14	1.80
Acid-test ratio	0.85	0.90
Debt ratio	0.50	0.50
Long-term debt to total capitalization	0.67	0.70
Times interest earned	12.00	10.00
Average collection period	20.86	20.00
Inventory turnover (based on COGS)	6.99	7.00
Return on total assets	18.57%	8.40%
Gross profit margin	28.57%	25.0%
Operating income return on investment	28.50%	16.8%
Operating profit margin	17.24%	14.0%
Total asset turnover	1.57	1.20
Fixed asset turnover	2.41	1.80

Question: Which of the ratios reported above in the industry norms do you feel should be most crucial in determining whether the bank should extend the line of credit? Why? (4 Marks) (500 words)