As loan analyst for Metlock Bank, you have been presented the following information. Toulouse Co. Lautrec...
As loan analyst for Metlock Bank, you have been presented the
following information.
|
Toulouse Co. |
Lautrec Co. |
|||||
|---|---|---|---|---|---|---|
|
Assets |
||||||
|
Cash |
$119,000 | $306,000 | ||||
|
Receivables |
217,000 | 289,000 | ||||
|
Inventories |
576,000 | 495,000 | ||||
|
Total current assets |
912,000 | 1,090,000 | ||||
|
Other assets |
489,000 | 616,000 | ||||
|
Total assets |
$1,401,000 | $1,706,000 | ||||
|
Liabilities and Stockholders’ Equity |
||||||
|
Current liabilities |
$311,000 | $332,000 | ||||
|
Long-term liabilities |
406,000 | 489,000 | ||||
|
Capital stock and retained earnings |
684,000 | 885,000 | ||||
|
Total liabilities and stockholders’ equity |
$1,401,000 | $1,706,000 | ||||
|
Annual sales |
$883,000 | $1,529,000 | ||||
|
Rate of gross profit on sales |
30 | % | 40 | % | ||
Each of these companies has requested a loan of $50,000 for 6
months with no collateral offered. Because your bank has reached
its quota for loans of this type, only one of these requests is to
be granted.
Compute the various ratios for each company. (Round
answer to 2 decimal places, e.g. 2.25.)
|
Toulouse Co. |
Lautrec Co. |
|||||
|---|---|---|---|---|---|---|
|
Current ratio |
enter the ratio rounded to 2
decimal places
|
: 1 | enter the ratio rounded to 2
decimal places
|
: 1 | ||
|
Acid-test ratio |
enter the ratio rounded to 2
decimal places
|
: 1 | enter the ratio rounded to 2
decimal places
|
: 1 | ||
|
Accounts receivable turnover |
enter the accounts receivable
turnover rounded to 2 decimal places
|
times | enter the accounts receivable
turnover rounded to 2 decimal places
|
times | ||
|
Inventory turnover |
enter the inventory turnover
rounded to 2 decimal places
|
times | enter the inventory turnover
rounded to 2 decimal places
|
times | ||
|
Cash to current liabilities |
enter the ratio rounded to 2
decimal places
|
: 1 | enter the ratio rounded to 2
decimal places
|
: 1 | ||
Homework Answers
Answer:
Current ratio = Current Assets / Current Liabilities
Toulouse Co. Current ratio = $912,000 / $311,000 = 2.93
Lautrec Co. Current ratio = $1,090,000 / $332,000 = 3.28
Acid-test ratio = [(Total current assets - inventory) / Current liabilities
Toulouse Co. Acid-test ratio = [($912,000 - $576,000) / $311,000]
= $336,000 / $311,000
= 1.08
Lautrec Co. Acid-test ratio = [($1,090,000 - $495,000) / $332,000]
= $595,000 / $332,000
= 1.79
Accounts receivable turnover = Net Credit sales / Average accounts receivable
Note:
1.Here, it not clear regarding the credit sales.So, the entire sales made during the year are assumed to be on credit
2. Here,we are not provided with opening and closing accounts receivable. So, the accounts receivable provided are considered as average accounts receivable
Toulouse Co. Accounts receivable turnover = $883,000 / $217,000 = 4.07
Lautrec Co. Accounts receivable turnover = $1,529,000 / $289,000 = 5.29
Inventory Turnover = Cost of goods sold / Average inventory
Note:
1. Here,we are not provided with opening and closing Inventories. So, the Inventory provided is considered as average Inventory
Cost of goods sold = Sales - Gross profit = [Sales - (Sales * Gross profit rate)]
Cost of goods sold of Toulouse Co. = [$883,000 - ($883,000 * 30%)]
= [$883,000 - $264,900]
= $618,100
Cost of goods sold of Lautrec Co. = [$1,529,000 - ($1,529,000 * 40%)]
= [$1,529,000 - $611,600]
= $917,400
Toulouse Co. Inventory Turnover = $618,100 / $576,000 = 1.07
Lautrec Co Inventory Turnover = $917,400 / $495,000 = 1.85
Cash to Current Liabilities = Cash / Current Liabilities
Toulouse Co Cash to Current Liabilities = $119,000 / $311,000 = 0.38
Lautrec Co Cash to Current Liabilities = $306,000 / $332,000 = 0.92
| Toulouse Co. | Lautrec Co. | |||||
| Current Ratio | 2.93 | : 1 | 3.28 | : 1 | ||
| Acid-test ratio | 1.08 | : 1 | 1.79 | : 1 | ||
|
Accounts receivable turnover |
4.07 | times | 5.29 | times | ||
|
Inventory Turnover |
1.07 | times | 1.85 | times | ||
|
Cash to current liabilities |
0.38 | : 1 | 0.92 | : 1 | ||
By examining every ratio it is evident that Lautrec Co. is a better performer than Toulouse Co.
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