The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firms sales were $600,000 for the year just ended, and its total assets exceed $400,000. The company was started by Mr. Jarmon just ten 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 firms bank totaling $80,000. In the past, the firm 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 firms 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 firms payables during the summer months, which are the firms peak seasonal sales period.

The firms two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firms income statement for the year just ended was provided to support the loan request. These statements are found on Pages 2 and 3.

Your job is to analyze Jarmons loan request. The task is to be completed as follows:

1. Calculate the financial ratios for 2019 corresponding to the industry norms found on page 4.
2. Which of the ratios reported on page 4 in the industry norms do you feel should be most crucial in determining whether Merchants National Bank should extend the line of credit? What strengths and weaknesses are apparent from your analysis of Jarmons financial ratios?
3. Based on the ratio analysis you performed in part B, would you recommend approval of the loan request? Discuss your analysis in a detailed memo.

Mr. Vehlim will be at our offices on December 6^th to discuss the loan request. I need to have your memo analyzing this situation on or before December 3^rd. See me if you have any questions or concerns about this.

B D E Ratio Norm Jarmon's Ratio Evaluation T.P. Jarmon Company Income Statement for the Year Ended 12/31/19 $600,000 460,000 $140,000 Sales Less: Cost of Goods Sold Gross profits Less: Expenses General & Administrative Interest Depreciation Total Profit before taxes Less: Taxes Profits after taxes Less: Cash dividends To Retained Earnings $30,000 10,000 30,000 Current ratio Acid test Debt ratio Long-term debt to Total Capitalization Times interest earned ACP Inventory Turnover (Based on COGS) ROA Gross profit margin Net profit margin Operating return on investment Operating profit margin Total asset turnover Fixed asset turnover 1.8 times 9 times 0.5 0.7 10 times 20 days 7 times 8.40% 25% 7% 16.80% 14% 1.2 times 1.8 times 70,000 $70,000 27,100 $42,900 31,800 $11,100 4 . B D E F B D E Liabilities & Stockholders' Equity T. P. Jarmon Company Balance Sheets for 12/31/18 and 12/31/19 13 14 15 16 17 18 Assets Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stockholders' equity Total Liabilities & Equity 2018 $48.000 15,000 6,000 $69,000 $160,000 $172,200 $401,200 2019 $57,000 13,000 5,000 $75,000 $150,000 $183,300 $408,300 19 20 21 Cash Marketable securities Accounts receivable Inventory Prepaid Rent Total current assets Net plant & equipment Total Assets 2018 $15,000 6,000 42,000 51,000 1,200 $115,200 286,000 $401,200 2019 $14,000 6,200 33,000 84,000 1,100 $138,300 270.000 $408,300 22 23 24 25 26 27 28