Crowley Building Supply sells various building materials to retail outlets. The

Question

Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:

     During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.

Assume that the following ratios are typical of companies in the building supply industry:

Sycamore State Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following amounts and ratios for both this year and last year:

Current ratio. (Round your answers to 2 decimal places.)

Acid-test ratio. (Round your answers to 2 decimal places.)

Average collection period. (The accounts receivable at the beginning of last year totaled $271,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)

Average sale period. (The inventory at the beginning of last year totaled $524,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)

Present the balance sheet in common-size form. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Present the income statement in common-size form down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:

Explanation / Answer

1. This Year Last Year (a) Working Capital 728380 651190 Current assets - current liabilities (b) Current Ratio 1.9 2.4 Current Assets / Current Liabilities (c) Acid-test ratio 0.7 1.1 Quick Assets / Curent Liabilities (d) Average Collection period - days 28.7 23.9 365 / Accounts receivable turnover Ratio (e) Average Sales Period 56.1 46.5 365 / Inventory turnover ratio (f) Debt-to-equity ratio 0.8 0.7 Total Liabilities / Stockholders' equity (g) Times interest earned 10.12 8.06 Income before interest / Interest expense Quick assets Current Assets 1550380 1112190 Inventory assets 956880 596690 Quick assets 593500 515500 Accounts Receivable Turnover Ratio Beginning Accounts receivables 304000 271000 Ending Accounts Receivables 492000 304000 Average Accounts Receivable (A) 398000 287500 Sales                                                 (B) 5053000 4395000 Accounts Receivable Turnover Ratio (B/A) 12.7 15.3 Inventory Turnover Ratio Beginning Inventory 596690 524000 Ending Inventory 956880 596690 Average Inventory                     (A) 776785 560345 Sales                                                 (B) 5053000 4395000 Inventory Turnover Ratio       (B/A) 6.5 7.8 Crowley Building Supply Comparative Balance Sheets This Year Last Year Value % Value % Assets Current Assets Cash 64500 2.0% 149500 5.6% Marketable Securities 9500 0.3% 27500 1.0% Accounts Receivable, net 492000 15.3% 304000 11.4% Inventory 956880 29.8% 596690 22.3% Prepaid Expenses 27500 0.9% 34500 1.3% Total Current Assets 1550380 48.3% 1112190 41.6% Plant and Equipment, net 1657620 51.7% 1562580 58.4% Total Assets 3208000 100.0% 2674770 100.0% Liabilities and Stockholders' Equity Liabilities: Current Liabilities 822000 25.6% 461000 17.2% Bonds Paybale, 8% 624500 19.5% 624500 23.3% Total Liabilities 1446500 45.1% 1085500 40.6% Stockholders' Equity Preferred Stock, $25 par , 7% 334000 10.4% 334000 12.5% Common Stock, $10 par 526000 16.4% 526000 19.7% Retained Earnings 901500 28.1% 729270 27.3% Total Stockholders' Equity 1761500 54.9% 1589270 59.4% Total Liabilities and Stockholders' Equity 3208000 100.0% 2674770 100.0% Crowley Building Supply Comparative Income Statements This Year Last Year Value % Value % Sales 5053000 100.0% 4395000 100.0% Cost of Goods Sold 3892600 77.0% 3456600 78.6% Gross Margin 1160400 23.0% 938400 21.4% Selling and administrative expenses 654900 13.0% 535900 12.2% Net opearating income 505500 10.0% 402500 9.2% Interest expense 49960 1.0% 49960 1.1% Net income before taxes 455540 9.0% 352540 8.0% Income Taxes 159439 3.2% 123389 2.8% Net income 296101 5.9% 229151 5.2%

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