Allied Apparel Company received a large order from Websters Department Stores, which operates a chain of approximately 300 popular-priced department stores located primarily in the New England–Middle Atlantic states. Allied is considering extending trade credit to Websters. As part of its credit check, Allied obtained Websters' balance sheets and income statements for the last three years. A check of several of Websters' trade creditors has revealed that the firm generally takes any cash discounts when they are offered but averages about 30 days overdue on its payments to two suppliers whose credit terms are "net 30." A Dun & Bradstreet publication entitled Key Business Ratios yielded the following information concerning the "average" financial ratios for firms in the same line of business as Websters:

Current assets to current liabilities ........2.82

Earnings after taxes to sales ..........1.89%

Earnings after taxes to stockholders' equity ....5.65%

Total liabilities to stockholders' equity ......1.48

Websters Department Stores Income Statement (in Thousands of Dollars)

In evaluating Websters' application for trade credit, answer the following questions:

a. What positive financial factors would lead Allied to decide to extend credit to Websters?

b. What negative financial factors would lead Allied to decide not to extend credit to Websters?

c. What additional information about Websters would be useful in performing theanalysis?

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Websters Department Stores Balance Sheet (in Thousands of Dollars) 2002 2003 2004 Assets Current assets: $ 13.785 $ 9,283 $ 23,893 Cash and marketable securities Accounts receivable (net) 162,825 179.640 140,543 1 20,707 119,860 135.191 Inventories Other 2190 1.956 1.994 $293,962 $296,099 Total curent assets $330.806 Long-term assets: Bullding and equipment (net) $ 27,426 I1,821 $ 39,247 $333,209 $ 30.295 $ 30.580 16.687 $ 47.267 Other 14,794 $ 45.089 Total long-term assets Total assets $375.895 $343,366 Llabilities and stockholders' equity Current labilities: $ 23,637 $ 21.861 $ 15.020 Accounts payable Notes payable 165.299 117,010 135,929 49.229 $207,019 Other 49.273 29.653 Total current labilities $189,920 $209.972 Long-term labilitles: Debentures $ 38,001 $ 35.201 $ 36,101 Term loan 28.440 29,701 655 Other 853 4.986 $ 65.394 $ 65.557 Total long-term liabilities Stockholders' equity. I 42.987 $ 5,576 $ 5.576 $ 5,576 Common stock 2,580 2,580 Preferred stock 2.580 95.326 Retained earmings Total stockholders' equity Total liabilities and stockholders' equity $333,209 92,146 59.681 $ 67.837 $343.366 $100,302 S103.482 $375.895