The following comprise the balance sheets and income statements for Taylors Distributors Limited; a local

distribution company.

Balance Sheet

Taylors Ltd

As at 31 December 2019

Assets $ Liabilities $

Cash 40,000 Bank Overdraft 338,949

Accounts Receivable 486,953 Accounts Payable 203,767

Inventory 414,002 Accruals 138,169

Total Current Assets 940,955 Total Current Liabilities 680,885

Land and Building 377,600

Equipment 133,321 Shareholders equity 20

Vehicles 150,720 Retained earnings 421,404

Total Fixed Asset 688,641 Current earnings 527,287

TOTAL 1,629,596 TOTAL 1,629,596

Profit and Loss Accounts

Taylors Ltd

For the Period Ended 31 December 2019

Net Sales $4,141,500

Cost of Goods Sold 2,613,573

Gross Profit 1,527,927

EXPENSES

Salaries, wages and payroll costs $590,287

Repairs and maintenance 35,654

Licenses and taxes 9,717

Depreciation 58,950

Travel 10,798

Utilities 28,420

Overseas telephone 35,600

Motor vehicle expenses 65,648

Office expenses 10,468

Insurance 19,991

Donations 4,500

Advertising 14,517

Legal fees 2,500

Cleaning and sundry 3,600

Rent 40,240

Bank interest and charges 68,250

Entertainment 1,500

Total Expenses $1,000,640

Net Profit $527,287

The Head of Credit has requested that you perform the following preliminary analysis:

Ratio analysis using the available financial statements (10

marks)

Analyse the business performance on the basis of the financial statements, ratio analysis, rules

of thumbs and a set of industry averages provided by the Head of Credit. Note that the industry

averages provided are only for some ratios and hence not complete

(10 marks)

Some Industry Averages

RATIO INDUSTRY AVERAGE

Current ratio 2.0 times

Total liabilities to Equity 1.5 times

Return on equity 40.6%

Return on assets 22.8%

Average collections 32.3 days

Inventory turnover 6.8 times

Fixed assets to net worth 50%

Based on your preliminary evaluation, state whether you are prepared to tentatively offer credit

to this company, providing reasons for your position, stating any conditions you may have.

(5 marks)