This case can be assigned as a group activity. Additional instructions and material for this activity can be found on the Instructor Resource site and in WileyPLUS.
Atlas Limited operates a small private wholesale company selling imported foods to grocery retailers on Prince Edward Island. The company began operations on January 1, 2017, and has just completed its second year of operations. In January 2018, the company moved to a new location and now rents a much larger facility. When the move occurred, additional bank loans were taken out to finance the purchase of some new equipment. The CEO of the business, Jim O'Sullivan, negotiated with the bank to have principal payments (not interest) on any bank loan delayed until 2020. Jim has asked you to review information from the company's financial statements shown below and to accompany him to the bank. He wants you to help him convince his banker to give the company an operating line of credit.
The banker has some misgivings. Jim is not sure why, because the current ratio has risen and the debt to total assets ratio has fallen slightly. He did tell you that a contingent liability relating to a lawsuit launched against the company will be disclosed in the financial statements, but it has not been recorded because an estimate could not be determined.
Shown below are amounts extracted from the financial statements (in thousands).

Instructions
(a) Calculate the current, receivables turnover, inventory turnover, debt to total assets, and times interest earned ratios. Assume year-end amounts equal average amounts for the purpose of your calculations.
(b) Discuss how the ratios calculated in part CT10.3(a) have changed in 2018 compared with 2017 and identify possible underlying reasons for these changes.
(c) Explain to Jim why his banker may not want to give the company an operating line of credit.

2018 2017 1a na Cash Accounts receivable Inventory Property, plant, and equipment, net Accounts payable Bank loan, non-current Common shares Retained earnings $ 2,000 $10,00o 20,000 5,00o 30,0007,500 60,000 50,000 30,930 16,550 40,000 30,000 13,000 13,000 28,070 12,950 Sales Cost of goods sold Operating expenses Interest expense Income tax expense $100,00o $50,0o0 0,000 20,00o 26,000 10,000 2,400 1,500 6,4805,550