The Pottsville Manufacturing Corporation is considering extending trade credit to the San Jose Company. Examination of the records of San Jose has produced the following financial statements:
San Jose Company balance sheets (in millions)

San lose Company income statements (in millions)

The San Jose Company has a Dun & Bradstreet rating of 4A2. Inquiries into its banking disclosed balances generally in the low millions. Five suppliers to San Jose revealed that the firm takes its discounts from the three suppliers offering "2/10, net 30" terms, though it is about 15 days slow in paying the two firms offering terms of "net 30."
Analyze the San Jose Company's application for credit. What positive factors are present? What negative factors are present?

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ASSETS 20x1 20x2 20X3 Current assets Cash Receivables Inventories (at lower of cost or market) Other s 1.5 1.3 0.4 S 4.5 2.6 0.5 S 6.5 s 1.6 2.5 4.0 0.4 8.5 Total current assets Fixed assets Building (net) Machinery and equipment (net) 2.0 1.8 s 7.8 0.6 $16.9 Total fixed assets s 9.0 1.0 14.5 S 8.4 0.8 $15.7 Other assets Total assets LIABILITIES Current liabilities 5 2.1 0.2 5 3.1 0.4 0.2 3.7 3.0 $ 6.7 Notes payable (3.5%) Trade payables Other payables $ 3,8 0.9 23326 Total current liabilitics $ 2.5 4.0 $ 6,5 $ 4.9 2.0 $ 6.9 Term loan (8.5%) Total liabilities Net worth Preferred stock (6.5%) Common stock Retained earnings 1.0 5.0 4.0 $16.9 1.0 5.0 5.0 3.0 $15.7 Total liabilities and net worth $14.5 20X1 20X2 Net credit sales $15.8 Gross proft Net profit before taxes Profit after taxes To retained earnings Cost of goods sold Operating expenses Tax Dividends 3.7 s 2.6 S 1.3 S 1.0 13.0 s 3.2 1.0 s 2.2 1.2 s 2.5 s 13 1.0 s 1.0 0.0 L.0