Selected industry ratios 5.8% Profit margin 8.1% Return on assets ( investment ) 20.3 % Return on equity ... 6.3x Receivables turnover . 58.3 days Average collection period 4.3x Inventory turnover 8.0X Capital asset turnover 1.6 Current ratio 1.7x Total asset turnover .. 1.1 Quick ratio 60 % Debt to total assets 4.3X Times interest earned - termuse end of year amounts rather than average amounts 2. Answer the following questions : a ) you were being asked to determine whether your company should grant short - term credit to Wizard Industries , which ratios would you consider as most important ? ) If you were being asked to determine whether your company should grant longt- term Based on these ratios , would you grant short - term credit to Wizard ? credit to Wizard Industries , which ratios would you consider as most important ? Based on these ratios , would you grant long - term credit to Wizard ? e ) If you were being asked to determine whether your company should purchase shares in Wizard Industries as an investment , which ratios would you consider as most important ? Based on these ratios , would you recommend purchasing shares of Wizard ? Consider Wizard's dividend policy do you consider it to be reasonable ? Where is the money likely coming from to pay the dividends ?

37. You are the manager of a credit department. The sales team has presented a large order from a new purchaser, Wizard Industries. For approximately 12 years, Wizard has been installing security and water sprinkler systems in office buildings. The salespeople have been well trained, as they have also presented you with the following financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Wizard's more aggressive selling approach. The sales team is eager for you to grant credit to Wizard Industries. Of course, you must do a complete analysis noting any ratios that are cause for concern or require a further explanation. What is your recommendation? Do you grant credit? WIZARD INDUSTRIES Income Statements Year ended 2015 2014 2013 $1,605, 100 $1.841,300 $1.542.700 1.258,900 1,397.400 Sales (all on credit) . ............ 1,174800 ... Cost of goods sold .............. 346,200 443,900 367 900 256,850 Gross profit. ......... 265,650 294.200 Selling and administrative expense........ 14,000 14,400 16.009 Amortization. ..... 66,550 172,650 57,700 Operating profit.... 65.100 50.550 50,100 Interest expense . ... .... 1.450 122, 100 7,600 Earnings before taxes . .. .. 350 27,100 Taxes ... ... 2,200 $ 1,100 $ 95,000 $ 5,400 Earnings available to common shareholders $ 70,000 $ 65,000 60,000 Dividends declared. WIZARD INDUSTRIES Balance Sheet December 31, 2015 2014 2013 Assets Cash .... . . . . . . ....... $ 14,900 $ 24,700 $ 11,500 Marketable securities. . .... 7.000 7,000 7,000 Accounts receivable. ...... 410.800 361,800 297.300 Inventory.......... 256,600 330,000 289,900 Prepaid expenses. ..... 5.200 800 5,500 Total current assets. ..... 694,500 724,300 611,200 Net plant and equipment. ..... 162,000 172,900 184,300 Goodwill ...... . .. 25,400 28.200 30.600 Total assets. . $881,900 $925,400 $826, 100 Liabilities and Shareholders' Equity Accounts payable . ..... $145,900 $196,700 Bank loan ........... $209,700 . . . ...... 254.000 Accrued expenses ..... 202,000 169,000 Total current liabilities. 3,700 23.700 14,400 Long-term debt ..... 403.600 422.400 393.100 . .. Total liabilities. ........ 225.800 181.600 141.000 Common stock ........ 629,400 604.000 534.100 Retained earnings. ..... 14,000 14,000 14,000 . . .. ........ Total shareholders' equity . ............. 238,500 307.400 278.000 Total Nabilities and shareholders' equity . ... 252.500 321.400 292.000 $881.900 $925,400 $826.100