Midwest Inc. is a medium-size company that has been in business for 20 years. The industry has become very competitive in the last few years, and Midwest has decided that it must grow if it is going to survive. It has approached the bank for a sizable five-year loan, and the bank has requested Midwests most recent financial statements as

Chapter 13, Alternate Problems #7
Midwest Inc. is a medium-size company that has been in business for 20 years. The industry has become very competitive in the last few years, and Midwest has decided that it must grow if it is going to survive. It has approached the bank for a sizable five-year loan, and the bank has requested Midwest€™s most recent financial statements as part of the loan package. The industry in which Midwest operates consists of approximately 20 companies relatively equal in size. The trade association to which all of the competitors belong publishes an annual survey of the industry, including industry averages for selected ratios for the competitors. All companies voluntarily submit their statements to the association for this purpose. Midwest€™s controller is aware that the bank has access to this survey and is very concerned about how the company fared this past year compared with the rest of the industry. The ratios included in the publication and the averages for the past year are as follows:
Ratio Industry Average
Current ratio 1.20
Acid-test (quick) ratio 0.50
Inventory turnover 35 times
Debt-to-equity ratio 0.50
Times interest earned 25 times
Return on sales 3%
Asset turnover 3.5 times
Return on common stockholders€™ equity 20%
The financial statements to be submitted to the bank in connection with the loan follow.

Midwest Inc. is a medium-size company that has been in


Required
1. Prepare a columnar report for the controller of Midwest Inc. comparing the industry averages for the ratios published by the trade association with the comparable ratios for Midwest. For Midwest, compute the ratios as of December 31, 2010, or for the year ending December 31, 2010, whichever is appropriate.
2. Briefly evaluate Midwest€™s ratios relative to the industry averages.
3. Do you think that the bank will approve the loan? Explain youranswer.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...

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ISBN: 978-1133161646