Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 3.16P
Learning Goal 4
P3-16 Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry average and Creek’s recent financial statements (following), evaluate and recommend appropriate action on the loan request.
Creek Enterprises Income Statement for the Year Ended December 31 2019
Sales revenue | $30,000,000 |
Less: Cos I of goods sold | 21,000,000 |
Gross profits | $9,000,000 |
Less: Operating expenses | |
Selling expense | $3,000,000 |
General and administrative expenses | 1,800,000 |
General and administrative expenses | 1,800,000 |
Lease expense | 200,000 |
1,000,000 | |
Total operating expense | $2,000,000 |
Operating profits | $ 3,000.000 |
Less: Interest expense | 1,000,000 |
Net profits before taxes | $ 2,000.000 |
Less: Taxes (rate = 40 %) | 800,000 |
Net profits after taxes | $1,200,000 |
Less: |
100,0000 |
Earnings available for common stockholders | $1,100.000 |
Industry averages | |
Debt ratio | 0.51 |
Times interest earned ratio | 7.30 |
Fixed-payment coverage ratio | 1.85 |
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Chapter 3 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
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