A) The balance sheet and income statement for the J

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A) The balance sheet and income statement for the J. P. Robard Mfg. Company are as follows:  

Balance Sheet($000)

$ 500 Cash 

2,000 Accounts receivable 

1,000 Inventories 

3,500 Current assets 

4,500 Net fixed assets 

$8,000 Total assets 

$1,100 Accounts payable 

600 Accrued expenses 

300 Short-term notes payable 

$2,000 Current liabilities 

2,000 Long-term debt 

4,000 Owners' equity 

$8,000 Total liabilities and owners' equity 

 

 

Income Statement ($000)

8000$ Net sales (all credit) 

(3300) Cost of goods sold 

4700 Gross profit 

(3000) Operating Expenses (includes $500 depreciation) 

1700 Operating income 

(367) Interest expense 

1333$ Earnings before taxes 

(533) Income taxes (40%) 

800$ Net income 

 

A) Calculate and interpret the financial ratios for 2019corresponding to the industry norms provided as follows:

 

INDUSTRY NORMS

1.5: 1 Current ratio 

3 x Inventory turnover 

1 x Total asset turnover 

18% Operating profit margin 

18% Operating income return on investment 

60% Debt ratio 

100 days Average collection period 

1.5 :1 Fixed asset turnover 

15% Return on equity 

 

B) The company is applying for Bank Loan. Write a report to Gulf Bank PLC whether you recommend the bank for sanction of Loan. 

 

C) Would you recommend investment in this company? Similar companies pay 12% return. Calculate any other ratio you think appropriate. Write a report.

1. Firm Liquidity:  

2. Operating Profitability 

3. Financing Decisions 

4. Return on common equity