You recently were hired by First Vigilant Bank as the assistant loan officer. Your job description includes evaluating and recommending approval of commercial, real estate, or credit loans. During your first week on the job, the senior loan officer asks you for a second opinion on a loan application from cTek Corporation, a provider of technology products and services for business, government and education. One reason for your bosss request is a discrepancy between recent debt levels of cTek and those that existed when the company last made a loan request a few years ago. To assist you in your analysis, you have created a Tableau Dashboard depicting trends in risk and profitability ratios for the most recent ten years.
Debt to Equity Total stockholders' equity . Total liabilities Debt to Equity $250K 2.00 $200K 1.50 $150K Debt to Equity 1.00 $100K 0.50 $50K SOK 0.00 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Return on Assets vs Return on Equity Times Interest Earned ROE 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 6.00 20% 5.00 15% 4.00 3.00 10% 2.00 5% 1.00 0.00 0% 2012 2014 2016 2018 2020 RO.. ROE RO.. RO.. ROA RO.. RO.. ROE RO.. ROE RO.. RO.. ROA RO.. RO.. ROE RO.. RO.. ROA RO.. What were the amounts of total liabilities for cTek in 2012 and in 2021? O $81,000 in 2012 and $86,000 in 2021 $98,000 in 2012 and $194,000 in 2021 $100,000 in 2012 and $200,000 in 2021 How would you describe the change in cTek's capital structure over the past ten years? OThe amount of the company's debt has almost doubled. OThe amount of the company's shareholders' equity has almost doubled. The amounts of the company's debt and shareholders' equity have risen by approximately the same percentages. Which conclusion would you draw from the changes in cTek's capital structure over the past ten years. Oother things equal, risk of default is declining. OThe amount of the company's debt is increasing, but in the same proportion as the rise in equity. An increase in the debt to equity ratio indicates a potential for higher risk of default. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 What do you take away from the graph of cTek's Times Interest Earned ratio? cTeks financial leverage is increasing and favorable. OThe margin of safety to creditors and potential lenders is deteriorating. OLooked at in combination with the return on assets, cTek's ability to pay fixed charges in the future is compelling. What were the rate of return on assets and the rate of return on equity in 2021? ORate of return on assets, 4.82%; rate of return on equity, 15.64% Rate of return on assets, 15.64%; rate of return on equity, 4.82% Rate of return on assets, 5%; rate of return on equity, 16% What overall assessment would you provide the senior loan officer regarding cTek's ability to repay a loan if granted? OProfitability is increasing, but so is the risk of default. Risk ratios are providing conflicting signals and rates of return are declining. ORisk is increasing while profitability is declining
