Exercise 24-4 As loan analyst for Concord Bank, you have been presented the foll

Question

Exercise 24-4 As loan analyst for Concord Bank, you have been presented the following information. Toulouse Co. Lautrec Co. Assets Cash 126,000 $317,000 316,000 511,000 924,000 1,144,000 631,000 $1,446,000 $1,775,000 213,000 585,000 Inventories Total current assets Other assets 522,000 Total assets Liabilities and Stockholders' Equity Current liabilities Long-term Babilities Capital stock and retained earnings $292,000 418,000 736,000 357,000 522,000 896,000 Total iabilities and stockholders' equity $1,446,000 $1,775,000 $942,000 $1,549,000 Annual sales Rate of gross profit on sales Each of these companies has 30% 40% has reached its quota for loans of this type, only one these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank of these requests is to be granted o 2 decimal places, e.g. 2.25.) Compute the various ratios for each company. (Round answer t Toulouse Co. Lautrec Co Version 4.24

Explanation / Answer

Current ratio = Current Asset /Current Liabilities

Acid-Test Ratio = (Cash + Marketable Securities + Account Receivable) /Current Liabilities

Accounts Receivable Turnover = Credit sales/ Average Receivables

Inventory Turnover =Cost of Goods Sold/ Average Inventory

                                     = Sales – Gross Profit/ Average Inventory

Cash to Current liabilities = Cash / Current liabilities

For Toulouse Co.:

Current ratio = $ 924,000/$ 292,000 = 3.16 : 1

Acid-Test Ratio = ($ 126,000 + $ 213,000) /$ 292,000

                         = $ 339,000/$ 292,000 = 1.16 : 1

Accounts Receivable Turnover = $ 942,000/$ 213,000 = 4.42 times

Inventory Turnover = $942,000 – ($ 942,000 x 30%)/$ 418,000

                               = $ 942,000 x 70 %/$ 418,000 = 1.58 times

Cash to Current liabilities = $126,000/$ 292,000 = 0.43

For Lautrec Co.:

Current ratio = $ 1,144,000/$357,000 = 3.20 : 1

Acid-Test Ratio = ($ 317,000 + $ 316,000) /$357,000

                          = $ 633,000//$357,000 = 1.77 : 1

Accounts Receivable turnover = $ 1,549,000/$ 316,000 = 4.90 times

Inventory Turnover = $ 1,549,000 – ($1,549,000 x 40%)/$ 511,000

                               = $ 942,000 x 60%/$ 511,000 = 1.82 times

Cash to Current liabilities = $ 317,000/$ 357,000 = 0.89 : 1

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