You are the manager of a credit department. The sales team has presented a large order from

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You are the manager of a credit department. The sales team has presented a large order from a new purchaser, Wizard Industries. For approximately 12 years, Wizard has been installing security and water sprinkler systems in office buildings.

The salespeople have been well trained, as they have also presented you with the following financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Wizard's more aggressive selling approach.

The sales team is eager for you to grant credit to Wizard Industries. Of course, you must do a complete analysis noting any ratios that are cause for concern or require a further explanation.

What is your recommendation? Do you grant credit?

Wizard Industry Income Statement Year ended 2013 2015 2014 Sales (all on credit). Cost of goods sold.. $1,605,100 S1,841


Wizard Industry Balance Sheet December 31, Assets 2015 2014 2013 Cash. $14,900 $24,700 $11,500 Marketable securities. 7,


Selected Industry ratios
Profit margin.................................................5.8%
Return on assets (investment).............................. 8.1%
Return on equity..............................................20.3%
Receivables turnover..........................................6.3 x
Average collection period....................................58.3 day
Inventory turnover.............................................4.3 x
Capital asset turnover..........................................8.0 x
Current ratio.....................................................1.6
Total asset turnover........................................... 1.7 x
Quick ratio...................................................... 1.1
Debt to total assets.............................................. 60%
Times interest earned............................................ 4.3 x
a). If you were being asked to determine whether your company should grant short-term credit to Wizard Industries, which ratios would you consider as most important?
b). Based on these ratios, would you grant short-term credit to Wizard?
c). If you were being asked to determine whether your company should grant long-term credit to Wizard Industries, which ratios would you consider as most important?
d). Based on these ratios, would you grant long-term credit to Wizard

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For  answer-question

Foundations of Financial Management

ISBN: 978-1259024979

10th Canadian edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta

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