Exercise NO: 4

As loan analyst for Utrillo Bank, you have been presented the following information.\nAssets\nToulouse Co. Lautrec Co.\nCash $ 120,000 $ 320,000\nReceivab

As loan analyst for Utrillo Bank, you have been presented the following information.

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Assets

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Toulouse Co. Lautrec Co.

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Cash $ 120,000 $ 320,000

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Receivables 220,000 302,000

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Inventories 570,000 518,000

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Total current assets 910,000 1,140,000

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Other assets 500,000 612,000

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Total assets $1,410,000 $1,752,000

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Liabilities and Stockholders’ Equity

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Current liabilities $ 305,000 $ 350,000

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Long-term liabilities 400,000 500,000

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Capital stock and retained earnings 705,000 902,000

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Total liabilities and stockholders’ equity $1,410,000 $1,752,000

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Annual sales $ 930,000 $1,500,000

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Rate of gross profi t on sales 30% 40%

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Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered.

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Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

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Instructions

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Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

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