You are the manager of a credit department. The sales team has presented a large order from a new purchaser, Dahua Technologies. For approximately 21 years, Dahua has been specializing in surveillance systems. The company supplies network, machine vision, HDCVI, smart building, vehicle surveillance, and transmission cameras, as well as accessories such as cabling and software.

The salespeople have been well trained, as they have also presented you with the following financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Dahuas more aggressive selling approach.

The sales team is eager for you to grant credit to Dahua Technologies. Of course, you must do a complete analysis noting any ratios that are cause for concern or require a further explanation.

What is your recommendation? Do you grant credit?

Relevant Financial Information and Industry Averages to be used in your analysis:

Dahua Technologies Income Statements Year Ended
	2020	2019	2018
Sales (all on credit)	$ 1,605,100	$ 1,841,300	$ 1,542,700
Cost of goods sold	1,258,900	1,397,400	1,174,800
Gross profit	346,200	443,900	367,900
Selling and administrative expense	265,650	256,850	294,200
Amortization	14,000	14,400	16,000
Operating profit	$ 66,550	$ 172,650	$ 57,700
Interest expense	65,100	50,550	50,100
Earnings before taxes	$ 1,450	$ 122,100	$ 7,600
Taxes	350	27,100	2,200
Earnings available to common shareholders	$ 1,100	$ 95,000	$ 5,400
Dividends declared	$ 70,000	$ 65,000	$ 60,000

Dahua Technologies
Balance Sheet, for year Ended
	2020	2019	2018
Assets
Cash	$ 14,900	$ 24,700	$ 11,500
Marketable securities	7,000	7,000	7,000
Accounts receivable	410,800	361,800	297,300
Inventory	256,600	330,000	289,900
Prepaid expenses	5,200	800	5,500
Total current assets	694,500	724,300	611,200
Net plant and equipment	162,000	172,900	184,300
Goodwill	25,400	28,200	30,600
Total assets	$881,900	$925,400	$826,100
Liabilities and Shareholders Equity
Accounts payable	$145,900	$196,700	$209,700
Bank loan	254,000	202,000	169,000
Accrued expenses	3,700	23,700	14,400
Total current liabilities	403,600	422,400	393,100
Long-term debt	225,800	181,600	141,000
Total liabilities	629,400	604,000	534,100
Common stock	14,000	14,000	14,000
Retained earnings	238,500	307,400	278,000
Total shareholders equity	252,500	321,400	292,000
Total liabilities and shareholders equity	$881,900	$925,400	$826,100

Selected Industry Ratios

Profit margin 5.8%

Return on assets (investment) 8.1%

Return on equity 20.3%

Receivables turnover 6.3

Average collection period 58.3 days

Inventory turnover 4.3

Capital asset turnover 8.0

Current ratio 1.6

Total asset turnover 1.7

Quick ratio 1.1

Debt to total assets 60 %

Times interest earned 4.3

Would you credit the company, why.. explain?