PA13-6 (Algo) Using Ratios to Compare Loan Requests from Two Companies [LO 13-4, 13-5]

The financial statements for Royale and Cavalier companies are summarized here:

	Royale Company				Cavalier Company
Balance Sheet
Cash	$	30,000			$	50,000
Accounts Receivable, Net		60,000				21,000
Inventory		120,000				35,000
Equipment, Net		560,000				170,000
Other Assets		145,000				51,000
Total Assets	$	915,000			$	327,000
Current Liabilities	$	130,000			$	25,000
Note Payable (long-term)		200,000				65,000
Common Stock (par $20)		485,000				215,000
Additional Paid-In Capital		55,000				9,000
Retained Earnings		45,000				13,000
Total Liabilities and Stockholders Equity	$	915,000			$	327,000
Income Statement
Sales Revenue	$	815,000			$	295,000
Cost of Goods Sold		485,000				155,000
Other Expenses		245,000				100,000
Net Income	$	85,000			$	40,000
Other Data
Per share price at end of year	$	20.00			$	15.00
Selected Data from Previous Year
Accounts Receivable, Net	$	52,000			$	19,000
Note Payable (long-term)		200,000				65,000
Equipment, Net		560,000				170,000
Inventory		100,000				43,000
Total Stockholders' Equity		585,000				237,000

These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Royale Company wants to borrow $80,000 cash and Cavalier Company is asking for $35,000. The loans will be for a two-year period. Both companies estimate bad debts based on an aging analysis, but Cavalier has estimated slightly higher uncollectible rates than Royale. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the years average and all sales are on account.

Required:

1. Calculate the following ratios. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal places.)

Ratio Royale Company Cavalier Company % % % % % % Tests of Profitability 1. Net Profit Margin 2. Gross Profit Percentage 3. Fixed Asset Turnover 4. Return on Equity 5. Earnings per Share 6. Price/Earnings Ratio Tests of Liquidity: 7. Receivables Turnover Days to Collect 8. Inventory Turnover Days to Sell 9. Current Ratio Tests of Solvency: 10. Debt-to-Assets