You are an analyst working at a large Canadian bank, and your job is to evaluate the financial condition of potential corporate clients and make a recommendation as to whether they should be approved for a loan.Your task is to review the financial data for four potential borrowers and decide which of the four you would recommend for a loan -you can only recommend one of the four.The four applicants are companies operating in the manufacturing sector, and the financial data provided are 3-year averages for each of the companies.

Required:

(1)For each group of ratios (Liquidity(s/t), Liquidity(l/t), Turnover, and Profitability), summarize your analysis of how each company's ratios compare to one another.(10 marks)

(2)Based on your analysis in (1) above, identify which company has the most favorable ratios in that group of ratios.(5 marks)

(3)Which company would you approve for a loan and why?Which companies would you reject for a loan and why?(5 marks)

Ratio Analysis 3 year averages Co.1 Co.2 Co.3 Co.4 Liquidity (short-term) Current Ratio 2.50 1.75 2.75 1.50 times Quick Ratio 1.20 0.79 1.75 0.75 times Cash Ratio 0.75 0.90 1.25 1.00 times Liquidity (long-term) Total Debt Ratio 55% 60% 35% 50% Debt/Equity 1.80 2.00 2.50 1.90 times Equity Multiplier 2.80 3.00 3.50 2.90 times Turnover Times Interest Earned 15.50 14.50 17.50 13.50 times Cash Coverage 12.50 13.50 20.40 11.50 times Inventory Turnover 2.50 1.75 6.50 2.75 times (IT) Days' Sales in Inventory 146.00 208.57 56.15 132.73 days Receivables Turnover 4.50 5.50 7.50 3.75 times (RT) Days's Sales in Receivables 81.11 66.36 48.67 97.33 days NWC Tumover 135.29 115.75 210.15 155.05 times Fixed Asset Turnover 0.85 0.75 1.45 1.25 times Total Asset Turnover 0.70 0.65 1.15 0.90 times Profitability Profit Margin 9% 11% 15% 7% Return on Assets 3% 4% 8% 7% Return on Equity 6% 7% 16% 10%