E3—3 (Analyzing financial statements) The chief executive officer of Ginny’s Fashions has included the following financial statements in a loan application submitted to Priority Bank. The company intends to acquire additional equipment and wishes to finance the purchase with a long-term note. 1997 1996 Balance Sheet Current assets $21,000 $ 14,000 Long-term assets 52,000 50,000 Current liabilities 9,000 7,000 Long-term liabilities 24,000 26,000 Contributed capital 25,000 25,000 Retained earnings 15,000 6,000 Income Statement Revenues $74,000 $ 70,000 Expenses 56,000 53,000 Statement of Cash Flows Net cash from operating activities $ 9,000 $ 15,000 Net cash from investing activities (12,000) (14,000) Net cash from financing activities 5,000 7,000 Change in cash balance $ 2,000 $ 8,000 Beginning cash balance 9,000 1,000 Ending cash balance $11,000 $ 9,000 REQUIRED: Assume that you, a bank loan officer, review the financial statements, and recommend whether Ginny’s Fashions should be considered for a loan. Support your recommendation with financial ratios.