You are a credit analyst of a growing commercial bank and have recently received loan applications from two

companies of relatively similar size.

Shown below are selected financial data for these two applicants at the end of the current year:

................................................................................Blue Company.....................Red Company

Net credit sales...........................................................675,000..............................560,000.....

Cost of goods sold......................................................504,000..............................480,000....

Cash.............................................................................51,000...............................20,000.....

Accounts receivable (net).............................................75,000...............................70,000....

Inventory.......................................................................84,000..............................160,000...

Current liabilities...........................................................105,000............................100,000....

Assume that the year-end balances for accounts receivable and for inventory approximate the average balances

of these items throughout the year.

Required:

A. For each of the two companies, compute the following:

1. Working capital
2. Current ratio
3. Acid test ratio
4. Accounts receivable turnover
5. Average collection period
6. Inventory turnover
7. Days sales in inventory
8. Operating cycle

B. Assuming funds are limited and only one of the two applicants can be accommodated, to whom would you be

willing to give a short-term loan and why?