Using Ratios to Compare Loan Requests from Two Companies

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

	Royale Company			Cavalier Company
Balance Sheet
Cash	$	18,000		$	75,000
Accounts Receivable, Net		48,000			9,000
Inventory		96,000			11,000
Equipment, Net		536,000			146,000
Other Assets		133,000			39,000
Total Assets	$	831,000		$	280,000
Current Liabilities	$	106,000		$	19,000
Note Payable (long-term)		176,000			41,000
Common Stock (par $20)		473,000			203,000
Additional Paid-in Capital		43,000			8,000
Retained Earnings		33,000			9,000
Total Liabilities and Stockholders Equity	$	831,000		$	280,000
Income Statement
Sales Revenue	$	779,000		$	259,000
Cost of Goods Sold		473,000			143,000
Other Expenses		233,000			88,000
Net Income	$	73,000		$	28,000
Other Data
Per share price at end of year	$	20.00		$	17.00
Selected Data from Previous Year
Accounts Receivable, Net	$	40,000		$	7,000
Note Payable (long-term)		176,000			41,000
Equipment, Net		536,000			146,000
Inventory		88,000			31,000
Total Stockholders' Equity		549,000			220,000

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 $68,000 cash and Cavalier Company is asking for $23,000. 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.)