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Problem 9-19

Joseph Berio is a loan officer with the First Bank of Tennessee. Red Brick, Inc., a major producer of masonry products, has applied for a short-term loan. Red Brick supplies building material throughout the southern states, with brick plants located in Tennessee, Alabama, Georgia, and Indiana.

The firm's income statement and balance sheet are given below. The third table presents both a ratio analysis of Red Brick's previous year's financial statements and the industry averages of the ratios.

Red Brick Income Statement(for the period ending December 12/31/20X1)Sales$199,000,000Cost of goods sold101,000,000Administrative expenses21,000,000Operating income$77,000,000Interest expense14,000,000Taxes500,000Net income$62,500,000Red Brick Balance Sheet as of 12/31/20X2AssetsLiabilities and Stockholders' EquityCash$800,000Accounts payable$43,000,000Accounts receivable32,000,000*Notes payable15,000,000Inventory83,000,000Long-term debt53,000,000Plant and equipment131,000,000Stockholders' equity135,800,000$246,800,000$246,800,000*70% of sales are on credit. Previous year's inventory was $66,100,000.Company's RatiosIndustry(Previous Year)AverageCurrent ratio1.9:12.3:1Quick ratio0.5:10.8:1Inventory turnover4.1x4.7xAverage collection period52 days52 daysDebt ratio (debt/total assets)31%47%Times-interest-earned5.53.8Return on equity54.9%14.0%Return on assets28.9%10.1%Operating profit margin29.8%15.1%Net profit margin24.2%8.9%To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year ratios and industry averages. Assume there are 365 days in a year. Do not round intermediate calculations. Round your answers to two decimal places.

Current ratio oftimes is-Select-

higher than

lower than

equal to

Item 2

the industry average and-Select-

higher than

lower than

equal to

Item 3

the ratio in the previous year.

Quick ratio oftimes is-Select-

higher than

lower than

equal to

Item 5

the industry average and-Select-

higher than

lower than

equal to

Item 6

the ratio in the previous year.

Inventory turnover ratio ofis-Select-

higher than

lower than

equal to

Item 8

the industry average and-Select-

higher than

lower than

equal to

Item 9

the ratio in the previous year.

Average collection period ofdays is-Select-

higher than

lower than

equal to

Item 11

the industry average and-Select-

higher than

lower than

equal to

Item 12

the ratio in the previous year.

Debt ratio of% is-Select-

higher than

lower than

equal to

Item 14

the industry average and-Select-

higher than

lower than

equal to

Item 15

the ratio in the previous year.

Times-interest-earned ratio ofis-Select-

higher than

lower than

equal to

Item 17

the industry average and-Select-

higher than

lower than

equal to

Item 18

the ratio in the previous year.

Return on equity ratio of% is-Select-

higher than

lower than

equal to

Item 20

the industry average and-Select-

higher than

lower than

equal to

Item 21

the ratio in the previous year.

Return on assets ratio of% is-Select-

higher than

lower than

equal to

Item 23

the industry average and-Select-

higher than

lower than

equal to

Item 24

the ratio in the previous year.

Operating profit margin ratio of% is-Select-

higher than

lower than

equal to

Item 26

the industry average and-Select-

higher than

lower than

equal to

Item 27

the ratio in the previous year.

Net profit margin ratio of% is-Select-

higher than

lower than

equal to

Item 29

the industry average and-Select-

higher than

lower than

equal to

Item 30

the ratio in the previous year.