Question

As loan analyst for Stellar Bank, you have been presented the following information.

		Toulouse Co.			Lautrec Co.
Assets
Cash		$119,000			$307,000
Receivables		212,000			288,000
Inventories		554,000			495,000
Total current assets		885,000			1,090,000
Other assets		505,000			597,000
Total assets		$1,390,000			$1,687,000
Liabilities and Stockholders’ Equity
Current liabilities		$313,000			$335,000
Long-term liabilities		390,000			505,000
Capital stock and retained earnings		687,000			847,000
Total liabilities and stockholders’ equity		$1,390,000			$1,687,000
Annual sales		$974,000			$1,517,000
Rate of gross profit on sales		30	%		40	%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Compute the various ratios for each company. (Round answer to 2 decimal places, e.g. 2.25.)

		Toulouse Co.			Lautrec Co.
Current ratio		enter the ratio rounded to 2 decimal places	: 1		enter the ratio rounded to 2 decimal places	: 1
Acid-test ratio		enter the ratio rounded to 2 decimal places	: 1		enter the ratio rounded to 2 decimal places	: 1
Accounts receivable turnover		enter the accounts receivable turnover rounded to 2 decimal places	times		enter the accounts receivable turnover rounded to 2 decimal places	times
Inventory turnover		enter the inventory turnover rounded to 2 decimal places	times		enter the inventory turnover rounded to 2 decimal places	times
Cash to current liabilities		enter the ratio rounded to 2 decimal places	: 1		enter the ratio rounded to 2 decimal places	: 1

Answer 1

Answer:

Current Ratio	2.83	3.25
Acid Test ratio / Quick ratio	1.15	1.78
Account Receivables Turnover Ratio	4.59	5.27
Inventory Turnover ratio	1.23	1.90
Cash to Current liabilities Ratio	0.38	0.92

Calculations:

	Particulars	Toulouse Co.	Lautrec Co
A	Current assets	$      885,000	$ 1,090,000
B	Current liabilities	$      313,000	$    335,000
A/B	Current Ratio	2.83	3.25
	Particulars	Toulouse Co.	Lautrec Co
A	Quick assets (Current assets - Prepaid expenses - Inventory)	$      361,000	$    595,000
B	Current liabilities	$      313,000	$    335,000
A/B	Acid Test ratio / Quick ratio	1.15	1.78
	Particulars	Toulouse Co.	Lautrec Co
A	Credit Sales	$      974,000	$ 1,517,000
B	Average Debtors (Opening Debtors + Closing debtors)/2	$      212,000	$    288,000
A/B	Account Receivables Turnover Ratio	4.59	5.27
	Particulars	Toulouse Co.	Lautrec Co
A	COGS	$      681,800	$    942,000
B	Average Inventory (Opening inventory + closing Inventory)/2	$      554,000	$    495,000
A/B	Inventory Turnover ratio	1.23	1.90
	Particulars	Toulouse Co.	Lautrec Co
A	Cash	119,000	307,000
B	Current liabilities	313,000	335,000
A/B	Cash to Current liabilities Ratio	0.38	0.92

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