You are a commercial lending officer for a local bank. Lester Corporation has come to the bank requesting a $150,000 short term loan to meet operating needs. Lester has good, but not excellent credit and has been in business for a number of years, and has a history of profitability, although not excessively profitable in recent years. The loan would be for one year at 8%. If the bank made the loan, the bank would earn $12,000 in interest income in addition to lending fees of approximately $3,000. At the end of the year, Lester is expected to repay the loan in full.

Required:

A Compute all ratios for Lester in the industry averages

B Compare each ratio in industry averages and rate on the following scale: Poor, Below Average, Average, Above Average, Excellent

C Provide an overall comment of the following on Lester's: Liquidity, Profitability, Solvency

D Would you lend yeso? Why or why not?

D

Industry Averages: c. Comment Lester Corporation Balance Sheets For the Years Ended December 21, 2019 and 2018 Comment 1. Liquidity Liquidity Current ratio: Acid test ratio Accounts receivable turnover Inventory turnover $ 3:1 1.3:1 9 times per year 4 times per year e Cash Short-term investments Accounts receivable 5 Inventory S Pre-paid costs Property, Plant & Equip. Total Assets 2019 160,000 75,000 250,000 500,000 50,000 1.100.000 2 135.000 2018 80,000 200,000 300,000 450,000 30,000 1.140.000 2 200.000 2. Profitability Profitablity Gross profit Profit margin Return on average stockholder equity Earnings per share Price earnings ratio 17-18% 5% 10% $2.50 to 3.00 per share 9 times earnings Liabilities and Stockholder Equity 3. Solvency Current liabilities 3 Mortgage payable Stockholder equity 5 Total liabilities & SIE 400,000 425,000 1.310.000 550.000 500,000 1.150.000 b. Compare a. Compute: Rating Above Below Average Average average Computatio Excellent Poor 2.135.000 2200.000 d. Decide - Lend? Yes/No, Why 3 Lester Corporation Income Statement For the Year Ended December 31, 2019 Liquidity Current ratio for 2019 Acid test ratio for 2019 Accounts receivable turnover Inventory turnover Cash Flow Statement 30,000 Sales Revenue: 3 Net Sales Revenue 125,000 Profitablity Gross profit 2 Profit Margin Return on average stockholder equity Earnings per share Price earnings ratio (75,000) Cash flow from Operations 2,500,000 Cash Flow From Investing 2,000,000 500,000 Cash Flow from Financing 250.000 250,000 Increase in Cash 50,000 200,000 Cash, January 1, 2019 40,000 160,000 Cash, December 31, 2019 5 Cost of Goods Sold 5 Gross Profit Operating Expenses Net Income before int, and taxes e Interest expense Net Income before tax Income tax expense 2 Net income 80,000 Solvency Debt to asset ratio for 2019 80,000 160,000 Other Information 5 Number of shares outstanding: Stock price - 50,000 $40 per share 3 2 3