Columnar Report - Case Study Example

Finance and Accounting: Columnar Report of Finance and Accounting: Columnar Report Calculations Current ratio= Current assets/current liabilities =31100/33945 =0.916187951Acid test (quick) ratio = (Cash + Accounts Receivable + Short-term Investments)/Current liabilities = (1135+15650)/33945 =0.494476359Account receivable turnover= Net credit sales/Average accounts receivableAverage accounts receivables = (15650+12380)/2 = 14015 =542750/14015 =38.72636461Inventory turnover = Sales/Inventory or Cost of Goods sold/Average inventoryAverage inventory = (12680+15870)/2 = 57100=435650/57100 = 34.

35725552Debt to equity ratio= Total liabilities/Shareholders’ EquityTotal liabilities= 33945+80000 = 113945=113945/165580 =0.688156782Times interest earned=Earnings Before Interest and Tax/Interest on bonds and other charges =41400/9275 =4.46361186Return on sales= Net Income Before Interest and Tax/Sales =41400/542750 =0.076278213Assets turnover= sales or revenue/total assets =542750/279525 =1.94168679Return on assets= Net Income/Total Assets =19095/279525 =0.068312316Return on common stockholders’ equity= net income/shareholders’ equity =19095/165580 =0.

115321899Ratio Comparisons with Industry AveragesRatioHeartlandIndustry averageCurrent Ratio0.91621.23Acid Test Ratio0.49450.75Accounts receivable turnover38.7333 timesInventory turnover34.3629 timesDebt to Equity Ratio0.68820.53Times Interest Earned4.46 times8.65 timesReturn on Sales7.63%6.57%Assets Turnover1.94 times1.95 timesReturn on assets6.83%12.81%Return on Common Stockholders’ Equity11.53%17.67%Heartland’s ratios relative to industry averagesThe company’s current ratio (0.9162) is lower than the industry’s average current ratio (1.23). The Acid test ratio (0.4945) is also smaller than the industry’s average of 0.75. The accounts receivable ratio (38.73) is greater than the industry average (33).

There is a high inventory turnover (34.36) recorded by the company against the industry average of 29. The company has a higher debt-to-equity ratio (0.6882) as compared to the industry’s average of 0.53. The company records a lower times interest earned ratio (4.46) as compared to the industry average (8.65). The company records higher returns on sales ratio (7.63) than that of the industry (6.57). The company’s asset turnover ratio (1.94) is lower than that of the industry (1.95) while return on sales is 6.

83% compared to 12.81 in the industry. Return on equity for the company (11.53%) is lower than the industry average of 17.67.Bank’s Treatment of the loan applicationThe bank is likely to reject the loan approval. This is due to several reasons. First, the current ratio and decisive test ratio are both less than 1.0 indicating that the company may have problems meeting its debt obligations. The high debt-to-equity ratio indicates the company has been using debt financing aggressively. This means it may have many debts to pay up.

These may contribute to the bank’s rejection of the loan application.ReferencesLiraz, M. (2013). Guide to Financial Ratios Analysis - A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis. New York: Liraz Publishing