The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were

$600,100

for the year just ended, and its total assets exceeded

$500,000.

The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling

$80,000.

In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period.The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following tables:

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. Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request.a.Calculate the following financial ratios for 2013:

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.b.Which of the ratios calculated in part

(a)

do you think should be most crucial in determining whether the bank should extend the line of credit?

c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation.

Ratio Norms
Current ratio	1.80
Acid-test ratio	0.90
Debt ratio	50.0%
Times interest earned	10.00
Average collection period	20.0
Inventory turnover (based on cost of goods sold)	7.00
Return on equity	12.0%
Operating return on assets	16.8%
Operating profit margin	14.0%
Total asset turnover	1.20
Fixed asset turnover

T. P. Jarmon Company Balance Sheets
	2012	2013
Cash	$15,100	$13,900
Marketable securities	5990	6190
Accounts receivable	42100	32900
Inventory	51000	84100
Prepaid rent	1210	1090
Total current assets	$115,400	$138,180
Net plant and equipment	285900	270100
Total assets	$401,300	$408,280
	2012	2013
Accounts payable	$48,000	$56,900
Notes payable	15000	13100
Accruals	6010	5010
Total current liabilities	$69,010	$75,010
Long-term debt	160100	150100
Common stockholders' equity	172190	183170
Total liabilities and owners' equity	$401,300	$408,280