1. (55 points) You have been working as an analyst in the credit department of a...

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1. (55 points) You have been working as an analyst in the credit department of a major commercial bank for about a month. Last week, you and your manager analyzed the financial statements of two local companies, The ABC Inc., and The XYZ Corp. The loan application of these two companies will be discussed in the loan committee meeting next week. Your boss asked you to finish calculating the remaining ratios of these companies and come prepared to defend your decision to extend credit to only one of these companies to tomorrow's daily meeting. You took the financial reports of these companies home to work on them tonight after dinner so that you would be well prepared for your meeting in the morning. While you are preparing your dinner, your cat ate some parts of the financial report and the ratios you calculated with your manager. At first, you panicked but after reviewing your cat's art, you realized that you can piece the information together. Income Statement, 2022 Sales Cost of Goods Sold Other expenses Earnings Before Interest and Taxes (EBIT) Interest Expense Earnings Before Taxes (EBT) Taxes Net Income Balance Sheet, 2022 Cash Accounts Receivable Inventory Fixed Assets Total The ABC Inc. 2,250,000 1,600,000 340,000 310,000 57,250 The ABC Inc. 125,000 975,000 1,975,000 The XYZ Corp. 25,500,000 19,125,000 3,250,000 3,125,000 300,000 2,825,000 847,500 1,977,500 The XYZ Corp. 2,700,000 3,300,000 3,500,000 8,750,000 18,250,000 Balance Sheet, 2022 (Continued) Accounts Payable Other Current Liabilities LT Debt Stockholders' Equity Total Financial Ratios Current Ratio Quick Ratio Inventory Turnover Total Asset Turnover Total Debt Ratio Times Interest Earned Profit Margin (%) Return on Equity (%) The ABC Inc. 250,000 100,000 750,000 875,000 1,975,000 The ABC Inc. 1.4286 3.2000 8.0000 The XYZ Corp. 1,738,125 1,250,000 18,250,000 The XYZ Corp. 1.3973 0.4925 21.35 a. (7 points) Complete the financial statements of ABC Inc. and XYZ Corp. Please round the numbers in the Balance Sheet and Income Statement to the nearest integer value. b. (10 points) Calculate the missing ratios for ABC Inc. and XYZ Corp. Please have four decimal places for the ratios. c. (10 points) Both of these firms are applying for a 2-year loan from your bank. Given the financial statements and financial ratios you calculated for these firms, determine the company you would grant the loan to. Briefly justify your choice of company. d. (10 points) Suppose ABC Inc. distributes $128,400 as dividends to its shareholders this year. Calculate how much the ABC Company can grow by using the retained earnings and additional borrowing to keep its debt ratio constant. e. (8 points) There was no information provided in the financial reports of XYZ Corp. regarding its dividend payments. Out of curiosity, you want to calculate the dividends the company can distribute to its shareholders if it grows at the same rate (by using the retained earnings and additional borrowing to keep its debt ratio constant) as ABC Inc. f. (10 points) Your manager also would you like to discuss the differences in the Return on Assets (ROA) and the Return on Equity (ROE) of these two firms using the DuPont Identity. After conducting the DuPont decompositions for ROA and ROE, identify the areas in which each company is doing a good job and the areas in which each company might have a problem. 1. (55 points) You have been working as an analyst in the credit department of a major commercial bank for about a month. Last week, you and your manager analyzed the financial statements of two local companies, The ABC Inc., and The XYZ Corp. The loan application of these two companies will be discussed in the loan committee meeting next week. Your boss asked you to finish calculating the remaining ratios of these companies and come prepared to defend your decision to extend credit to only one of these companies to tomorrow's daily meeting. You took the financial reports of these companies home to work on them tonight after dinner so that you would be well prepared for your meeting in the morning. While you are preparing your dinner, your cat ate some parts of the financial report and the ratios you calculated with your manager. At first, you panicked but after reviewing your cat's art, you realized that you can piece the information together. Income Statement, 2022 Sales Cost of Goods Sold Other expenses Earnings Before Interest and Taxes (EBIT) Interest Expense Earnings Before Taxes (EBT) Taxes Net Income Balance Sheet, 2022 Cash Accounts Receivable Inventory Fixed Assets Total The ABC Inc. 2,250,000 1,600,000 340,000 310,000 57,250 The ABC Inc. 125,000 975,000 1,975,000 The XYZ Corp. 25,500,000 19,125,000 3,250,000 3,125,000 300,000 2,825,000 847,500 1,977,500 The XYZ Corp. 2,700,000 3,300,000 3,500,000 8,750,000 18,250,000 Balance Sheet, 2022 (Continued) Accounts Payable Other Current Liabilities LT Debt Stockholders' Equity Total Financial Ratios Current Ratio Quick Ratio Inventory Turnover Total Asset Turnover Total Debt Ratio Times Interest Earned Profit Margin (%) Return on Equity (%) The ABC Inc. 250,000 100,000 750,000 875,000 1,975,000 The ABC Inc. 1.4286 3.2000 8.0000 The XYZ Corp. 1,738,125 1,250,000 18,250,000 The XYZ Corp. 1.3973 0.4925 21.35 a. (7 points) Complete the financial statements of ABC Inc. and XYZ Corp. Please round the numbers in the Balance Sheet and Income Statement to the nearest integer value. b. (10 points) Calculate the missing ratios for ABC Inc. and XYZ Corp. Please have four decimal places for the ratios. c. (10 points) Both of these firms are applying for a 2-year loan from your bank. Given the financial statements and financial ratios you calculated for these firms, determine the company you would grant the loan to. Briefly justify your choice of company. d. (10 points) Suppose ABC Inc. distributes $128,400 as dividends to its shareholders this year. Calculate how much the ABC Company can grow by using the retained earnings and additional borrowing to keep its debt ratio constant. e. (8 points) There was no information provided in the financial reports of XYZ Corp. regarding its dividend payments. Out of curiosity, you want to calculate the dividends the company can distribute to its shareholders if it grows at the same rate (by using the retained earnings and additional borrowing to keep its debt ratio constant) as ABC Inc. f. (10 points) Your manager also would you like to discuss the differences in the Return on Assets (ROA) and the Return on Equity (ROE) of these two firms using the DuPont Identity. After conducting the DuPont decompositions for ROA and ROE, identify the areas in which each company is doing a good job and the areas in which each company might have a problem.