34% thereafter Would a credit line of $465,000 be sufficent to meet the companie
ID: 2399969 • Letter: 3
Question
34% thereafter
Would a credit line of $465,000 be sufficent to meet the companies needs?
Projected Income statement for Year Ending Dec 31, 2004 Projected balance sheet at December 31, 2004 Amount Assets Amount Projected sales $3,600 Cash (1.5% of sales) 54 COGS Accounts receivable (12% of sales) 432 Beginning inventory $418 Inventory (16% of sales) 576 Purchases $2,750 Current assets 0 $3,168 PP&E (grow with sales) 210 Ending inventory $576 Total assets 1,272 COGS (72% of sales) $2,592 Gross profit $1,008 Liabilities Less: Operating expenses (25% of sales) $900 Notes payable (AFN = plug) 675 Operating income $108 Accounts payable 75 Plus: Purchase discounts (2% of (2750-660)) $42 Accrued expenses 52 Less: Interest $46 Long-term debt - current portion 7 Net income before taxes $90 Current liabilities 852 Provision for income taxes* $19 Long term debt 43 Net income after taxes $71 Total liabilities 844 Net worth 428 * 15% rate on first $50K Total liabilities and net worth 1272 25% on next $25K34% thereafter
Would a credit line of $465,000 be sufficent to meet the companies needs?
Explanation / Answer
To look at the liquidity ability of the company, we analyze their liquidity ratio like current ratio which is current assets / current liabiliy. Here. CA = $ 1062 and CL = 852. Thus Current Ratio = 1.25 which can be considered good and indicates company have enough current assets to pay back short term liabilities. Looking at the financials, company is having net income after tax of $ 71 as well as its net worth also of $ 428 which indicated company is not only profitable but have enough assets to pay back all the liabilities.
Loans are required to finance the company operations, if the company is profitable one may consider it as operating properly and have enough liquidity supported by own cash and capital as well as loans. Thus $ 465000 is sufficient to meet the company needs/
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.