Springfield Bank is evaluating Creek Enterprises, which has requested a $4,310,000 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 and Creek's recent financial statements, evaluate and recommend appropriate action on the loan request.

Industry averages
Debt ratio	0.49
Times interest earned ratio	7.33
Fixed-payment coverage ratio

Creek Enterprises Income Statement for the Year Ended December 31, 2019 Sales revenue $30,010,000 Less: Cost of goods sold 20,962,000 Gross profits $9,048,000 Less: Operating expenses Selling expense $2,981,000 General and administrative expenses 1,799,000 Lease expense 250,000 Depreciation expense 1,046,000 Total operating expense 6,076,000 Operating profits $2,972,000 Less: Interest expense 991,000 Net profits before taxes $1,981,000 Less: Taxes (rate=21%) 416,010 Net profits after taxes $1,564,990 Less: Preferred stock dividends 115,200 Earnings available for common stockholders $1,449,790

Creek Enterprises Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Current assets Current liabilities Cash $984,000 Accounts payable $8,022,000 Marketable securities 3,030,000 Notes payable 8,033,000 Accounts receivable 12,048,000 Accruals 526,000 Inventories 7,456,000 Total current liabilities $16,581,000 Total current assets $23,518,000 Long-term debt (includes financial leases)** $19,528,000 Gross fixed assets (at cost)* Stockholders' equity Land and buildings $11,007,000 Preferred stock (25,600 shares, $4.50 dividend) $2,540,000 Machinery and equipment 20,516,000 Common stock (1.12 million Furniture and fixtures 7,997,000 shares at $4.75 par) 5,320,000 Gross fixed assets $39,520,000 Paid-in capital in excess of par value 4,040,000 Less: Accumulated depreciation 13,041,000 Retained earnings 1,988,000 Net fixed assets $26,479,000 Total stockholders' equity $13,888,000 Total liabilities and Total assets 49,997,000 stockholders' equity $49,997,000 *The firm has a 4-year financial lease requiring annual beginning-of-year payments of $250,000. Three years of the lease have yet to run. **Required annual principal payments are $818,000.

Creek Enterprises's debt ratio is ___ (Round to two decimal places.)

Part 2

Creek Enterprises's times interest earned ratio is ____(Round to two decimal places.)

Part 3

Creek Enterprises's fixed-payment coverage ratio is ______(Round to two decimal places.)

Part 4

Complete the following summary of ratios and compare Creek Enterprises's ratios vs. the industry average:(Round to two decimal places.)

	Creek	Industry
Debt ratio	enter your response here	0.49
Times interest earned ratio	enter your response here	7.33
Fixed-payment coverage ratio	enter your response here	1.94

Part 5

Do you agree or disagree with the decision below?

Because Creek Enterprises has a much higher degree of indebtedness and much lower ability to service debt than the average firm in the industry, the loan should be rejected.

Agree

Disagree