Assume the role of a banker and you have funds to lend to only one company. You have narrowed your choices to a company in the air conditioning & heating business – either Reitzel Heating or Klassen. You are given the following financial data for both companies on the following page.

For each company calculate the following

• Current Ratio
• Acid test ratio
• Inventory turnover
• Days’ sales in average receivable
• Debt ratio
• Times interest earned ratio
• Return on shareholders’ equity
• Earnings per share of common stock
• Price Earnings Ratio
• Debt to Equity Ratio

Required:

1. Prepare an executive summary explaining which company you would loan the funds to. Justify your answer using the ratios that you calculated.

2. Would you consider becoming an equity holder for either company? Why or why not?

Selected income statement date for current year:
	Reitizel	Klassen
Net Sales (all on credit)	388,000	502,000
Cost of Goods sold	215,000	263,000
Income from Operations	82,000	145,000
Interest expense		19,000
Net Income	54,000	78,000
Selected balance sheet data at the beginning of the current year:
	Reitizel	Klassen
Current Receivables, net	44,000	56,000
Inventories	97,000	96,000
Total assets	259,000	270,000
Preferred shares, $10.00 (2000 shares)		20,000
Common Shares (10,000 shares)	10,000
(6000 shares)		12,500
Total Shareholder's Equity	126,000	133,000
Selected balance sheet data at the end of the current year:
	Reitizel	Klassen
Current Assets:
Cash	25,000	21,000
Temporary Investments	22,000	16,000
Current receivables, net	42,000	46,000
Inventories	84,000	97,000
Prepaid Expenses	2,000	3,000
Total Current Assets	175,000	183,000
Total Assets	273,000	326,000
Total Current Liabilities	107,000	94,000
Total Liabilities	107,000	144,000
Preferred shares, $10.00 (2000 shares)		20,000
Common Shares (10,000 shares)	10,000
(6000 shares)		12,500
Total Shareholder's Equity	166,000	182,000
Market price per share of common stock	48	110

Answer rating: 100% (QA)

Debt ratio total debt total assets Reitzel Heating Klassen total debt excluding equity 107000 144000 total assets 273000 326000 debt ratio calculation ... View the full answer