You are a loan manager at a bank. You have $1 million left to lend this month. There are two companies vying for that million-dollar loan. Both have sufficient revenues and cash flow to pay back the loan. It is your job to select the most qualified recipient. If you make the loan to company A, they will have a Debt to Equity ratio of 2 and an interest coverage ratio of 4. If you make the loan to Company B they will have a Debt to Equity Ratio of 1 and an interest coverage ratio of 2. Which company would you prefer to lend the money to and why? Your answer should demonstrate your understanding of the ratios.

A third company comes in and wants to borrow the million dollars to purchase a competitors business. The company being purchased has a balance sheet, which shows $1,000,000 in Assets, $800,000 in Equity and $200,000 in Debt. If you make the loan to this third company, their interest coverage ratio is anticipated to be 5. Does this change your mind about which company you want to lend the million dollars to? Why or why not?