Gale & Co. has applied for a loan from the Trust Us Bank in order to invest in s
ID: 2619504 • Letter: G
Question
Gale & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential opportunities. In order to evaluate the firm as a potential debtor, the bank would like to compare Gale & Co. to the industry. The following are some key financial ratios 2016 2017 Industry Norm(2017) Current Ratio 4.3X 5.7X 5.0X Quick Ratio 2.1X 2.8X 3.0X Inventory Turnover 1.0X 1.3X 2.2X Average Collection Period 90days 78.3days 90days Debt Ratio 33% 28% 33% Times Interest Earned 5.0X 6.0X 7.0X Total Asset Turnover .46X .54X .76X Fixed Asset Turnover .92X .99X 1.0X Operating Profit Margin 29.1% 25.6% 20% Net Profit Margin 12.0% 14.6% 16.3% Return on Total Assets 7.1% 7.5% 9.0% Basic Earning Power Ratio 13.4% 13.7% 15.0% Return on Equity 10.6% 10.4% 13.4% What are the firm’s financial strengths and weaknesses? Should the bank make the loan? Why or why not?
Explanation / Answer
Firms financial position:
Thus, the firm is operating at a lower level to that to industry, but steady and improving.
We will suggest the bank to make loan to the firm, so its earning power is compatible to industry and is less risky as debt content in the capital structure is going down.
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