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 $12/31/20$X$1)$

Sales

$

$200,000,000$

Cost of goods sold

$187,000,000$

Administrative expenses

$28,000,000$

Operating income

$

$-15,000,000$

Interest expense

$11,000,000$

Taxes

$200,000$

Net income

$

$-26,200,000$

Red Brick Balance Sheet as of $12/31/20$X$2$

Assets

Liabilities and Stockholders$$ Equity

Cash

$

$700,000$

Accounts payable

$

$31,000,000$

Accounts receivable

$36,000,000$

$*$

Notes payable

$6,000,000$

Inventory

$72,100,000$

$$

Long$-$term debt

$40,000,000$

Plant and equipment

$136,000,000$

Stockholders$$ equity

$167,800,000$

$

$244,800,000$

$

$244,800,000$

$*70\%$ of sales are on credit.

$$ Previous year$$s inventory was $$63,000,000.$

Company$$s Ratios

Industry

$($Previous Year$)$

Average

Current ratio

$2\mathrm{.}1$:$7$

$2\mathrm{.}4$:$1$

Quick ratio

$1\mathrm{.}0$:$1$

$0\mathrm{.}7$:$1$

Inventory turnover

$5\mathrm{.}3$x

$4\mathrm{.}6$x

Average collection period

$81$ days

$48$ days

Debt ratio $($debt$/$total assets$)$

$31\%$

$31\%$

Times$-$interest$-$earned

$-1\mathrm{.}4$

$3\mathrm{.}5$

Return on equity

$-16\mathrm{.}3\%$

$14\mathrm{.}0\%$

Return on assets

$-11\mathrm{.}3\%$

$10\mathrm{.}3\%$

Operating profit margin

$-5\mathrm{.}8\%$

$14\mathrm{.}9\%$

Net profit margin

$-10\mathrm{.}1\%$

$8\mathrm{.}7\%$

To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year's 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 of times is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Quick ratio of times is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Inventory turnover ratio of is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Average collection period of days is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Debt ratio of $\%$ is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Times$-$interest$-$earned ratio of is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Return on equity ratio of $\%$ is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Return on assets ratio of $\%$ is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Operating profit margin ratio of $\%$ is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

Net profit margin ratio of $\%$ is $-$ Select $-$ the industry average and $-$ Select $-$ the ratio in the previous year.

$-$ Select $-$: Lower than, Higher than, or Equal To