FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Pedabo Invest (Pedabo) is in the business of extending loans and financing projects to organizations mainly in the agricultural industry. Pedabo has a track record of extending substantial loans to and financing agricultural projects of companies in the rural parts of the country. Pedabo was impacted in 2012 by a major economic event, which negatively impacted its ability to fund projects and extend loans by 39%. Despite the hit it took, Pedabo continues to fund some key projects and loans. Pedabo has capacity to extend one more business loan in the first quarter of 2013. Bargain’s and BBC & Company are two organizations that Pedabo is considering for the loan. Bargain’s and BBC & Company are both meat processing companies. They process meat and in turn sell to restaurants and supermarkets. As the Financial Analyst of Pedabo, you have been tasked with analyzing the financial statements (using financial ratios) of Bargain’s and BBC & Company and making a recommendation to the Senior Management of Pedabo in regards to which of the two organizations is better suited for the loan.
Required:
1. Compute the following ratios for Bargain’s and BBC & Company
a.
b. Quick Ratio
c. Times Interest Earned Ratio
d. Debt to Equity Ratio
e. Return on Sales Ratio
f. Return on Assets Ratio
g. Gross Profit Ratio
h. Profit Margin Ratio
2. Assuming that the current, debt to equity, times interest earned, debt to equity, return on sales and profit margin ratios are the only financial ratios that Pedabo uses in making loan or financing decisions, determine which of the two organizations is better suited for the loan. Carefully explain the rationale for your decision.
Transcribed Image Text:The Year-End 2012 Income Statement and Balance Sheet of Bargain's is outlined below:
Income Statement
Balance Sheet
Net Sales
756,512.00
Assets
Liabilities
Expenses
Cash
923,509.00
Accounts Payable
Salaries & Wages Payable
Notes Payable - Long Term
206,125.00
Cost of Goods Sold
(102,235.00)
Prepaid Insurance
26,920.00
32,465.00
Advertising Expense
(3,000.00)
Accounts Receivable
236,522.00
249,547.00
Inventory
251,000.00
(9,500.00)
Total Liabilities
Office Supplies Expense
Depreciation Expense
Furniture & Equipment (Net of Depr.)
404,134.00
488,137.00
(6,930.00)
Owners' Equity
Salaries & Wages Expense
Utilities Expense
Interest Expense
(156,500.00)
(7,550.00)
Capital Stock
Retained Earnings
650,800.00
(10,250.00)
703,148.00
Income Taxes
(15,650.00)
Total Owners Equity
1,353,948.00
Total Expenses
(311,615.00)
Net Income
444,897.00
Total Assets
1,842,085.00
Total Liabilities & Owners Equity
1,842,085.00
The beginning balances of selected Bargain's accounts are as follows:
January 1, 2012 Balances (Beginning Balances)
Cash
85,205.00
Prepaid Insurance
20,200.00
Accounts Receivable
65,900.00
Inventory
10,000.00
Furniture & Equipment (Net of Depr.)
750,000.00
Accounts Payable
37,400.00
Salaries & Wages Payable
25,000.00
The Year-End 2012 Income Statement and Balance Sheet of BBC & Company is outlined below:
Income Statement
Balance Sheet
Net Sales
5,00,00.00
Assets
Liabilties
Expenses
Cost of Goods Sold
Cash
7,855,002.00
Accounts Payable
1,099,832.00
638,608.00
356,000.00
1,382,511.00
Salaries & Wages Payable
Notes Payable - Short Term
(2,575,000.00)
Prepaid insurance
Other Expenses
(569,850.00)
Accounts Receivable
768,750.00
Interest Expense
(250,500.00)
Inventory
1,238,155.00
Notes Payable - Long Term
2,475,345.00
Income Taxe Expense
(185,100.00)
Office Supplies
Furniture & Equip.
322,037.00
Total Liabilties
4,982,625.00
(3,580,450.00)
1,419,750.00
Total Expenses
12,759,210.00
Net Income
Furniture & Equip - Accum. Depr.
(4,659,545.00)
Ownern' Equity
Capital Stock
10,755,940.00
Retained Eaming
3,514,8O5.00
Total Owners Equity
14,270,745.00
Total Assets
19.253,370.00
Total Liabilities & Owners Equity
19,253,370.00
Transcribed Image Text:The beginning balances of selected BBC & Company accounts are as follows:
January 1, 2012 Balances (Beginning Balances)
Cash
6,953,500.00
Prepaid Insurance
455,000.00
Accounts Receivable
1,560,050.00
Inventory
Office Supplies
Furniture & Equipment (Net of Depr.)
982,505.00
472,540.00
7,524,040.00
961,200.00
Accounts Payable
Salaries & Wages Payable
725,036.00
Notes Payable - Short Term
429,803.00
Notes Payable - Long Term
Retained Earnings
Capital Stock
2,000,391.00
2,095,055.00
9,500,350.00
The industry averages of the meat processing industry are as follows:
Industry Financial Ratios
Current Ratio
7.50
Quick Ratio
6.32
Debt to Equity Ratio
0.46
Times Interest Earned Ratio
39.10
Return on Sales Ratio
0.57
Profit Margin Ratio
0.66
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