1) Calculate the following profitability ratios for 2018 and 2019, compare with the industry averages shown in parentheses, and indicate if the company is doing better or worse than the industry and whether the performance is improving or deteriorating in 2019 as compared to 2018 (The industry average ratio is provided in parentheses) a) Gross profit margin (50 percent) b) Operating profit margin (15 percent) c) Net profit margin (8 percent) d) Return on assets (10 percent) e) Return on equity (20 percent) f) Current ratio (1.5) g) Quick ratio (1.0) h) Debt to total asset ratio (0.5) i) Times interest earned (25) j) Average collection period (45 days) k) Inventory turnover (8) l) Total asset turnover (1.6) 2) Calculate the economic value added (EVA) and market value added (MVA) for BBCC, assuming that the firm's income tax rate is 40 percent, the weighted average rate of return expected by the suppliers of the firm's capital is 10 percent, and the market price of the firm's stock is $20. There are 1.2 million shares outstanding. 3) Discuss the financial strengths and weaknesses of BBCC based on the financial condition as evident from the ratio analysis. Which ratios should you analyze more critically before recommending granting of the loan and what is your recommendation?

   

Transcribed Image Text:

lackboardcdn.com/5c09c20455594/15270097X-Blackboard Shop Sign in Suidwsstatenmus Portal | Houston la Mr. Person, the finance manager of BBCC, submitted a justification to support the application for a short-term loan from the Queensville Interstate Bank (QIB) to finance increased sales. You are the loan officer at QIB responsible for determining whether BBCC's business is strong enough to be able to repay the loan. Using the attached Income Statement and Balance Sheet, accomplish the following: 1) Calculate the following profitability ratios for 2018 and 2019, compare with the industry averages shown in parentheses, and indicate if the company is doing better or worse than the industry and whether the performance is improving or deteriorating in 2019 as compared to 2018 (The industry average ratio is provided in parentheses) a) Gross profit margin (50 percent) b) Operating profit margin (15 percent) c) Net profit margin (8 percent) d) Return on assets (10 percent) e) Return on equity (20 percent) f) Current ratio (1.5) g) Quick ratio (1.0) h) Debt to total asset ratio (0.5) 1) Times interest earned (25) Average collection period (45 days) k) Inventory turnover (8) 1) Total asset turnover (1.6) 2) Calculate the economic value added (EVA) and market value added (MVA) for BBCC. assuming that the firm's income tax rate is 40 percent, the weighted average rate of return expected by the suppliers of the firm's capital is 10 percent, and the market price of the firm's stock is $20. There are 1.2 million shares outstanding. 3) Discuss the financial strengths and weaknesses of BBCC based on the financial condition as evident from the ratio analysis. Which ratios should you analyze more critically before recommending granting of the loan and what is your recommendation? 2 53-Bucket-learn us east-1-prod-fleet01-xythos&X-Blackboard Ex. 2 Backboard Leam Easy to use Online GoDaddy M DELL O O O lackboardcdn.com/5c09c20455594/15270097X-Blackboard Shop Sign in Suidwsstatenmus Portal | Houston la Mr. Person, the finance manager of BBCC, submitted a justification to support the application for a short-term loan from the Queensville Interstate Bank (QIB) to finance increased sales. You are the loan officer at QIB responsible for determining whether BBCC's business is strong enough to be able to repay the loan. Using the attached Income Statement and Balance Sheet, accomplish the following: 1) Calculate the following profitability ratios for 2018 and 2019, compare with the industry averages shown in parentheses, and indicate if the company is doing better or worse than the industry and whether the performance is improving or deteriorating in 2019 as compared to 2018 (The industry average ratio is provided in parentheses) a) Gross profit margin (50 percent) b) Operating profit margin (15 percent) c) Net profit margin (8 percent) d) Return on assets (10 percent) e) Return on equity (20 percent) f) Current ratio (1.5) g) Quick ratio (1.0) h) Debt to total asset ratio (0.5) 1) Times interest earned (25) Average collection period (45 days) k) Inventory turnover (8) 1) Total asset turnover (1.6) 2) Calculate the economic value added (EVA) and market value added (MVA) for BBCC. assuming that the firm's income tax rate is 40 percent, the weighted average rate of return expected by the suppliers of the firm's capital is 10 percent, and the market price of the firm's stock is $20. There are 1.2 million shares outstanding. 3) Discuss the financial strengths and weaknesses of BBCC based on the financial condition as evident from the ratio analysis. Which ratios should you analyze more critically before recommending granting of the loan and what is your recommendation? 2 53-Bucket-learn us east-1-prod-fleet01-xythos&X-Blackboard Ex. 2 Backboard Leam Easy to use Online GoDaddy M DELL O O O

Answer rating: 100% (QA)

Here are the calculations and analysis for BBCC 1 Ratio Calculations a Gross profit margin 2018 Gross ProfitSales 2000040909 488 Worse than industry 50 2019 2200045000 489 Still worse b Operating prof... View the full answer