(Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear....

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(Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets exceeded $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling $88,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following tables: Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is (Round to two decimal places.). Data table Current ratio Acid-test ratio Debt ratio Data table T. P. Jarmon Company Balance Sheets 2012 2013 Cash $15,100 $14,000 Marketable securities 6,010 6,190 - X Accounts receivable Inventory Prepaid rent Total current assets 41,900 32,900 50,900 84,000 1,190 1,090 $115,100 $138,180 Ratio Norms 1.80 0.90 Net plant and equipment Total assets 285,900 270,000 $401,000 $408,180 50.0% 10.00 Accounts payable Notes payable Accruals Total current liabilities. Long-term debt Common stockholders' equity Total liabilities and owners' equity (Click on the icon in order to copy its contents into a spreadsheet.) 2012 2013 $48,000 $56,900 14,900 13,100 6,010 5,000 $68,910 $75,000 159,900 149,900 172,190 183,280 $401,000 $408,180 Times interest earned Average collection period 20.0 Inventory turnover (based on cost of goods sold) 7.00 Return on equity 12.0% Operating return on assets 16.8% Operating profit margin 14.0% Total asset turnover 1.20 Fixed asset turnover 1.80 (Click on the icon in order to copy its contents into a spreadsheet.) Print Done T. P. Jarmon Company Income Statement for 2013 Sales (all credit) $600,100 Less: Cost of goods sold (460,000) Gross profit $140,100 Less: Operating and interest expenses General and administrative $(29,900) Interest (10,000) Depreciation (30,000) Total $(69,900) Earnings before taxes $70,200 Less: Taxes Net income available to common stockholders Less: Cash dividends. Change in retained earnings (Click on the icon in order to copy its contents into a spreadsheet.) (27,200) $43,000 (31,700) $11,300 Print Done (Financial statement analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets exceeded $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling $88,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following tables: Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. a. Calculate the following financial ratios for 2013: T. P. Jarmon's current ratio is (Round to two decimal places.). Data table Current ratio Acid-test ratio Debt ratio Data table T. P. Jarmon Company Balance Sheets 2012 2013 Cash $15,100 $14,000 Marketable securities 6,010 6,190 - X Accounts receivable Inventory Prepaid rent Total current assets 41,900 32,900 50,900 84,000 1,190 1,090 $115,100 $138,180 Ratio Norms 1.80 0.90 Net plant and equipment Total assets 285,900 270,000 $401,000 $408,180 50.0% 10.00 Accounts payable Notes payable Accruals Total current liabilities. Long-term debt Common stockholders' equity Total liabilities and owners' equity (Click on the icon in order to copy its contents into a spreadsheet.) 2012 2013 $48,000 $56,900 14,900 13,100 6,010 5,000 $68,910 $75,000 159,900 149,900 172,190 183,280 $401,000 $408,180 Times interest earned Average collection period 20.0 Inventory turnover (based on cost of goods sold) 7.00 Return on equity 12.0% Operating return on assets 16.8% Operating profit margin 14.0% Total asset turnover 1.20 Fixed asset turnover 1.80 (Click on the icon in order to copy its contents into a spreadsheet.) Print Done T. P. Jarmon Company Income Statement for 2013 Sales (all credit) $600,100 Less: Cost of goods sold (460,000) Gross profit $140,100 Less: Operating and interest expenses General and administrative $(29,900) Interest (10,000) Depreciation (30,000) Total $(69,900) Earnings before taxes $70,200 Less: Taxes Net income available to common stockholders Less: Cash dividends. Change in retained earnings (Click on the icon in order to copy its contents into a spreadsheet.) (27,200) $43,000 (31,700) $11,300 Print Done