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You have just been hired as a loan officer at Fairfield State Bank. Your supervisor has given you a file containing a request from Hedrick
You have just been hired as a loan officer at Fairfield State Bank. Your supervisor has given you a file containing a request from Hedrick Company, a manufacturer of auto components, for a $1,000,000 five-year loan. Financial statement data on the company for the last two years are given below: |
Hedrick Company | ||||
Comparative Balance Sheet | ||||
This Year | Last Year | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 328,000 | $ | 427,000 |
Marketable securities | 0 | 99,000 | ||
Accounts receivable, net | 900,000 | 600,000 | ||
Inventory | 1,390,000 | 800,000 | ||
Prepaid expenses | 85,000 | 57,000 | ||
Total current assets | 2,703,000 | 1,983,000 | ||
Plant and equipment, net | 3,313,100 | 3,289,100 | ||
Total assets | $ | 6,016,100 | $ | 5,272,100 |
Liabilities and Stockholders Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 1,220,000 | $ | 900,000 |
Bonds payable, 10% | 1,300,000 | 1,170,000 | ||
Total liabilities | 2,520,000 | 2,070,000 | ||
Stockholders equity: | ||||
Preferred stock, 8%, $30 par value | 600,000 | 600,000 | ||
Common stock, $40 par value | 2,000,000 | 2,000,000 | ||
Retained earnings | 896,100 | 602,100 | ||
Total stockholders equity | 3,496,100 | 3,202,100 | ||
Total liabilities and stockholders equity | $ | 6,016,100 | $ | 5,272,100 |
Hedrick Company | ||||
Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all on account) | $ | 5,250,000 | $ | 4,330,000 |
Cost of goods sold | 4,010,000 | 3,240,000 | ||
Gross margin | 1,240,000 | 1,090,000 | ||
Selling and administrative expenses | 510,000 | 510,000 | ||
Net operating income | 730,000 | 580,000 | ||
Interest expense | 130,000 | 117,000 | ||
Net income before taxes | 600,000 | 463,000 | ||
Income taxes (30%) | 180,000 | 138,900 | ||
Net income | 420,000 | 324,100 | ||
Dividends paid: | ||||
Preferred stock | 48,000 | 48,000 | ||
Common stock | 78,000 | 39,000 | ||
Total dividends paid | 126,000 | 87,000 | ||
Net income retained | 294,000 | 237,100 | ||
Retained earnings, beginning of year | 602,100 | 365,000 | ||
Retained earnings, end of year | $ | 896,100 | $ | 602,100 |
Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been |
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