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You are the loans manager at a local bank. Two companies have approached you about securing a 6-month loan. Based on your calculations in the Microsoft Excel file provided to you by your instructor, please comment on the following: Assess and comment on the LIQUIDITY ratios you calculated: (1 mark) Assess and comment on the SOLVENCY ratios you calculated: (1 mark) Assess and comment on the PROFITABILITY ratios you calculated__(1 mark) Which company would you prefer to give the loan to between Root and Arrow? Explain why. (1 mark) In 2-3 sentences, describe the concern you would have if you found out that Arrow had upgraded its accounting system this year and the company did not test the new accounting system to make sure the system was processing data correctly? (1 mark) Revenue Sales Revenue Rent Revenue Interest Revenue 0 Other Revenues 1 Total revenues H 4 5 S 7. 8 9 D $ 6 7 Operating expenses Cost of Goods sold 1 Depreciation expense equipment 2 Depreciation expense vehicles 3 4 9 Wages expense Salary expense Benefit expense 0 Research and development expense Repairs and maintenance expense Sales and distribution costs expense Food and beverage expense Supplies expense Interest expense Information technology expense Advertising expense Total operating expenses 3 Profit before income tax Income Tax expense Profit FOR THE YEAR ENDED DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) Depreciation expense furniture Depreciation expense office building Insurance expense Property taxes expense ARROW LTD. INCOME STATEMENT Denotes all of these sales were made on credit $1,094 598 337 561 361 340 121 91 29 26 25 15 6 4 16 35 116 76 33 12 200 239 $2.590 1635 955 716 ASSETS Current assets Cash Short-term investments Accounts receivable Inventory Spare parts and supplies inventory Prepaid Maintenance. Prepaid expenses Total current assets Investments Property plant, and equipment Land Office Building Less: Accumulated depreciation Equipment Less: Accumulated depreciation Vehicles Less: Accumulated depreciation Furniture Less: Accumulated depreciation Total property, plant and equipment ARROW LTD. STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) $3,345 2,450 403 561 85 $1,753 737 2,608 243 25 839 232 92 66 342 14 69 2,047 476 218 $3,338 164 5,418 Intangible assets Trademark Patent Total intangible assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts payable Accrued liabilities Deferred Revenue Current portion of bank loan and mortgage payable Income Tax payable Total Current Liabilities Non-current liabilities Bank loan payable Mortgage Payable Bond payable Total Non-current liabilities Total Liabilities Shareholders Equity Preferred Shares ** Common Shares *** Retained Earning Total Shareholders' Equity Total liabilities and shareholders' equity **There were no preferred dividends declared this year. *** The Weighted Average number of common shares outstanding are: The Market price per common share is: 20,000,000 45 71 31 529 231 549 353 304 425 326 1,156 458 521 4,170 102 9,022 1,966 1,907 3,873 5,149 9,022 Revenue Sales Revenue Rent Revenue Interest Revenue Other Revenues Total revenues Operating expenses Cast of Goods sold Wages expense Salary expense Benefit expense Research and development expense Repairs and maintenance expense Sales and distribution costs expense Depreciation expense equipment Depreciation expense vehicles Depreciation expense furniture Depreciation expense office building Insurance expense Property taxes expense Food and beverage expense Supplies expense Interest expense Information technology expense Advertising expense Total operating expenses Profit before income tax Income Tax expense Profit ROOT LTD. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) *Denotes all of these sales were made on credit S 1,342 556 197 12 389254-58-588358 119 170 137 10 119 76 S 2,107 1855 252 176 ASSETS Current assets Cash Short-term investments Accounts receivable Inventory Spare parts and supplies inventory Prepaid Maintenance Prepaid expenses Total current assets Investments Property plant, and equipment Land Office Building Less: Accumulated depreciation Equipment Less: Accumulated depreciation Vehicles Less: Accumulated depreciation Furniture Less: Accumulated depreciation Total property, plant and equipment Intangible assets Trademark Patent Total intangible assets ROOT LTD. STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) S 2,519 549 1,991 400 513 173 190 58 10 $ 1,896 690 235 107 91 358 28 83 1,970 1,591 340 132 61 37 $ 3,405 112 4,116 98 Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts payable Accrued liabilities Deferred Revenue Current portion of bank loan and mortgage payable Income Tax payable Total Current Liabilities Non-current liabilities Bank loan payable Mortgage Payable Bond payable Total Non-current liabilities Total Liabilities Shareholders' Equity Preferred Shares ** Common Shares *** Retained Earning Total Shareholders' Equity Total liabilities and shareholders' equity ** There were no preferred dividends declared this year. ***The Weighted Average number of common shares outstanding a 25,000,000 The Market price per common share is: 20 1,090 118 443 516 328 425 274 2,147 408 898 1,084 7,731 2,495 2,846 5,341 2,390 7.731 Liquidity Working Capital: Current Assets - Current Liabilities Current Ratio: Current Assets Current Liabilities Quick Ratio: Cash + Short-term Investments + Accts Receivable Current Liabilities Receivable Turnover: Credit Sales Accounts Receivable Average Collection Period: Solvency 365 Receivable Turnover Inventory Turnover: Cost of Goods Sold Inventory Days in Inventory: 365 Inventory Turnover Debt to Total Assets: Total Liabilities Total Assets Arrow $ 1,372 1,7 4,7 77,7 3.9 93,6 49,9% $ 910 1,4 5,7 Root 64,0 3,7 98,6 59,1% Is higher or lower better? Higher Not comparable Higher Higher Lower Higher Lower Which company is better? Lower b Times Interest Earned Profit+Interest Expense+Income Tax Expense Interest Expense Debt to Total Equity: Total Liabilities Total Equity Profitability Profit Margin: Profit Sales Return On Assets (ROA): Profit Total Assets Asset Turnover: Sales Total Assets Earnings Per Share: Profit-Preferred Dividends Weighted Average Number of Shares Price Earnings: Market Price per share EPS Return on Common Shareholder's Equity Profit-Preferred Dividends Comman Shareholder's Equity 0 000000 Higher Higher Higher Higher Base an market expectations Higher You are the loans manager at a local bank. Two companies have approached you about securing a 6-month loan. Based on your calculations in the Microsoft Excel file provided to you by your instructor, please comment on the following: Assess and comment on the LIQUIDITY ratios you calculated: (1 mark) Assess and comment on the SOLVENCY ratios you calculated: (1 mark) Assess and comment on the PROFITABILITY ratios you calculated__(1 mark) Which company would you prefer to give the loan to between Root and Arrow? Explain why. (1 mark) In 2-3 sentences, describe the concern you would have if you found out that Arrow had upgraded its accounting system this year and the company did not test the new accounting system to make sure the system was processing data correctly? (1 mark) Revenue Sales Revenue Rent Revenue Interest Revenue 0 Other Revenues 1 Total revenues H 4 5 S 7. 8 9 D $ 6 7 Operating expenses Cost of Goods sold 1 Depreciation expense equipment 2 Depreciation expense vehicles 3 4 9 Wages expense Salary expense Benefit expense 0 Research and development expense Repairs and maintenance expense Sales and distribution costs expense Food and beverage expense Supplies expense Interest expense Information technology expense Advertising expense Total operating expenses 3 Profit before income tax Income Tax expense Profit FOR THE YEAR ENDED DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) Depreciation expense furniture Depreciation expense office building Insurance expense Property taxes expense ARROW LTD. INCOME STATEMENT Denotes all of these sales were made on credit $1,094 598 337 561 361 340 121 91 29 26 25 15 6 4 16 35 116 76 33 12 200 239 $2.590 1635 955 716 ASSETS Current assets Cash Short-term investments Accounts receivable Inventory Spare parts and supplies inventory Prepaid Maintenance. Prepaid expenses Total current assets Investments Property plant, and equipment Land Office Building Less: Accumulated depreciation Equipment Less: Accumulated depreciation Vehicles Less: Accumulated depreciation Furniture Less: Accumulated depreciation Total property, plant and equipment ARROW LTD. STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) $3,345 2,450 403 561 85 $1,753 737 2,608 243 25 839 232 92 66 342 14 69 2,047 476 218 $3,338 164 5,418 Intangible assets Trademark Patent Total intangible assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts payable Accrued liabilities Deferred Revenue Current portion of bank loan and mortgage payable Income Tax payable Total Current Liabilities Non-current liabilities Bank loan payable Mortgage Payable Bond payable Total Non-current liabilities Total Liabilities Shareholders Equity Preferred Shares ** Common Shares *** Retained Earning Total Shareholders' Equity Total liabilities and shareholders' equity **There were no preferred dividends declared this year. *** The Weighted Average number of common shares outstanding are: The Market price per common share is: 20,000,000 45 71 31 529 231 549 353 304 425 326 1,156 458 521 4,170 102 9,022 1,966 1,907 3,873 5,149 9,022 Revenue Sales Revenue Rent Revenue Interest Revenue Other Revenues Total revenues Operating expenses Cast of Goods sold Wages expense Salary expense Benefit expense Research and development expense Repairs and maintenance expense Sales and distribution costs expense Depreciation expense equipment Depreciation expense vehicles Depreciation expense furniture Depreciation expense office building Insurance expense Property taxes expense Food and beverage expense Supplies expense Interest expense Information technology expense Advertising expense Total operating expenses Profit before income tax Income Tax expense Profit ROOT LTD. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) *Denotes all of these sales were made on credit S 1,342 556 197 12 389254-58-588358 119 170 137 10 119 76 S 2,107 1855 252 176 ASSETS Current assets Cash Short-term investments Accounts receivable Inventory Spare parts and supplies inventory Prepaid Maintenance Prepaid expenses Total current assets Investments Property plant, and equipment Land Office Building Less: Accumulated depreciation Equipment Less: Accumulated depreciation Vehicles Less: Accumulated depreciation Furniture Less: Accumulated depreciation Total property, plant and equipment Intangible assets Trademark Patent Total intangible assets ROOT LTD. STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2019 CANADIAN DOLLARS (millions of dollars) S 2,519 549 1,991 400 513 173 190 58 10 $ 1,896 690 235 107 91 358 28 83 1,970 1,591 340 132 61 37 $ 3,405 112 4,116 98 Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts payable Accrued liabilities Deferred Revenue Current portion of bank loan and mortgage payable Income Tax payable Total Current Liabilities Non-current liabilities Bank loan payable Mortgage Payable Bond payable Total Non-current liabilities Total Liabilities Shareholders' Equity Preferred Shares ** Common Shares *** Retained Earning Total Shareholders' Equity Total liabilities and shareholders' equity ** There were no preferred dividends declared this year. ***The Weighted Average number of common shares outstanding a 25,000,000 The Market price per common share is: 20 1,090 118 443 516 328 425 274 2,147 408 898 1,084 7,731 2,495 2,846 5,341 2,390 7.731 Liquidity Working Capital: Current Assets - Current Liabilities Current Ratio: Current Assets Current Liabilities Quick Ratio: Cash + Short-term Investments + Accts Receivable Current Liabilities Receivable Turnover: Credit Sales Accounts Receivable Average Collection Period: Solvency 365 Receivable Turnover Inventory Turnover: Cost of Goods Sold Inventory Days in Inventory: 365 Inventory Turnover Debt to Total Assets: Total Liabilities Total Assets Arrow $ 1,372 1,7 4,7 77,7 3.9 93,6 49,9% $ 910 1,4 5,7 Root 64,0 3,7 98,6 59,1% Is higher or lower better? Higher Not comparable Higher Higher Lower Higher Lower Which company is better? Lower b Times Interest Earned Profit+Interest Expense+Income Tax Expense Interest Expense Debt to Total Equity: Total Liabilities Total Equity Profitability Profit Margin: Profit Sales Return On Assets (ROA): Profit Total Assets Asset Turnover: Sales Total Assets Earnings Per Share: Profit-Preferred Dividends Weighted Average Number of Shares Price Earnings: Market Price per share EPS Return on Common Shareholder's Equity Profit-Preferred Dividends Comman Shareholder's Equity 0 000000 Higher Higher Higher Higher Base an market expectations Higher
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Related Book For
The Future of Business
ISBN: 978-0176570255
5th edition
Authors: Norm Althouse, Laura Allan, Christopher Hartt
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