The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm?s ?sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The ?company was started by Mr. Jarmon just 10 years ago and has been profitable every year since ?its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of ?credit totaling $80,000 from the firm?s bank. In the past, the company has relied on its suppliers ?to finance a large part of its needs for inventory. However, in recent months tight money ?conditions have led the firm?s suppliers to offer sizable cash discounts to speed up payments for ?purchases. Mr. Vehlim wants to use the line of credit to replace a large portion of the firm?s ?payables during the summer, which is the firm?s peak seasonal sales period.?

The firm?s two most recent balance sheets were presented to the bank in support of its loan ?request. In addition, the firm?s income statement for the year just ended was provided. These ?statements are found in the following tables:

Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was ?assigned the task of analyzing Jarmon?s loan request.?

A. Calculate the financial ratios for 2013 corresponding to the industry norms provided as ?follows: (2 points each)?

B. Which of the ratios reported in the industry norms do you feel should be most crucial in ?determining whether the bank should extend the line of credit and why? Would you ?support T.P. Jarmon Company making the loan? (8 points)

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T. P. Jarmon Company, Balance Sheet for 12/31/2012 and 12/31/2013 2012 2013 Cash $ 15,000 $ 14,000 Marketable securities 6,000 6,200 Accounts receivable 42,000 33,000 Inventory 51,000 84,000 Prepaid rent 1,200 1,100 Total current assets $115,200 $138,300 Net plant and equipment 286,000 270,000 Total assets $408,300 $ 57,000 $401,200 Accounts payable $ 48,000 Notes payable 15,000 13,000 Accruals 6,000 5,000 Total current liabilities $ 69,000 $ 75,000 Long-term debt 160,000 150,000 Common stockholders' equity 172,200 183,300 Total liabilities and equity $401,200 $408,300 T. P. Jarmon Company, Balance Sheet for 12/31/2012 and 12/31/2013 2012 2013 Cash $ 15,000 $ 14,000 Marketable securities 6,000 6,200 Accounts receivable 42,000 33,000 Inventory 51,000 84,000 Prepaid rent 1,200 1,100 Total current assets $115,200 $138,300 Net plant and equipment 286,000 270,000 Total assets $408,300 $ 57,000 $401,200 Accounts payable $ 48,000 Notes payable 15,000 13,000 Accruals 6,000 5,000 Total current liabilities $ 69,000 $ 75,000 Long-term debt 160,000 150,000 Common stockholders' equity 172,200 183,300 Total liabilities and equity $401,200 $408,300

Answer rating: 100% (QA)

Industry average Performance Satisfactory Ratio Formula Calculation Ratio 138300 75000 13830084000 1... View the full answer