Baker & Co

question 91

Essay

Baker & Co.has applied for a loan from the Trust Us Bank to invest in several potential opportunities.To evaluate the firm as a potential debtor,the bank would like to compare Baker & Co.to the industry.The following are the financial statements given to Trust Us Bank:
Balance Sheet 12/31/13 12/31/14
Cash $305 270
Accounts receivable 275 290
Inventory 600 580
Current assets 1,180 1,140
Plant and equipment 1,700 1,940
Less: acc depr (500)(600)
Net plant and equipment 1,200 1,340
Total assets $2,380 $2,480
Liabilities and Owners' Equity
Accounts payable $150 $200
Notes payable 125 0
Current liabilities 275 200
Bonds 500 500
Owners' equity
Ordinary shares 940 1080
Retained earnings 665 700
Total owners' equity 1,605 1,780
Total liabilities and owners' equity $2,380 $2,480
Income Statement
Sales (100% credit)$1,100 $1,330
Cost of goods sold 600 760
Gross profit 500 570
Operating expenses 20 30
Depreciation 160 200
Net operating income 320 340
Interest expense 64 57
Net income before taxes 256 283
Taxes 87 96
Net income $169 $187
a.What are the firm's financial strengths and weaknesses?
b.Should the bank make the loan? Why or why not?

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Definitions:

Giardiasis

An infection of the small intestine caused by the protozoan parasite Giardia lamblia, leading to diarrhea, abdominal pain, and weight loss.

Diplomonads

A group of flagellated protozoa, often parasites, with two nuclei and multiple flagella, found in anaerobic environments.

Waterborne Disease

Illnesses caused by infectious agents that are transmitted through contaminated water.

Colonial Green Algae

A group of green algae that live together in a colony, where individual cells are often connected by cytoplasmic bridges and exhibit little differentiation.