Business Decision Problem Crescent Paints, Inc., a paintmanufacturer, has been in business for
five years. The company has had modest profits and hasexperienced few operating difficulties
until this year, 2016, when president Alice Becknell discussedher companyâs working capital
problems with you, a loan officer at Granite Bank. Becknellexplained that expanding her firm has
created difficulties in meeting obligations when they come dueand in taking advantage of cash
discounts offered by manufacturers for the timely payment of thecompanyâs accounts payable.
She would like to borrow $50,000 from Granite Bank. At yourrequest, Becknell submits the fol-
lowing financial data for the past two years:
2016 2015
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $2,000,000$1,750,000
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 1,320,000 1,170,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 42,000 33,600
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 22,000 18,000
December 31, 2014, data. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1,100,000
Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 205,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 350,000
CRESCENT PAINTS, INC.
Balance Sheets
Dec. 31, 2016 Dec. 31, 2015
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $ 31,000 $ 50,000
Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 345,000 250,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 525,000 425,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 11,000
6,000
Total Current Assets . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 912,000 731,000
Plant assets (net) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 483,000 444,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $1,395,000 $ 1,175,000
CRESCENT PAINTS, INC.
Balance Sheets
Dec. 31, 2016 Dec. 31, 2015
Liabilities and Stockholdersâ Equity
Notes payableâbanks. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . $ 100,000 $ 35,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 244,000 190,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 96,000
85,000
Total Current Liabilities. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 440,000 310,000
10% Mortgage payable . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 190,000
250,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 630,000 560,000
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 665,000 535,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000
80,000
Total Stockholdersâ Equity . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 765,000 615,000
Total Liabilities and Stockholdersâ Equity . . . . . . . . . . .. . . . . . . . . $1,395,000 $1,175,000
Calculate the following items for both years from the given dataand then compare them with the
median ratios for paint manufacturers provided by a commercialcredit firm:
Median Ratios for
Paint Manufacturers
1.
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 2.5
2.
Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1.3
3.
Accounts receivable turnover. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 8.1
4.
Average collection period. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 44.9 days
5.
Inventory turnover . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.9
6.
Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 0.78
7.
Return on assets . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.8%
8.
Return on sales . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2.4%
Calculate the following items for both years from the given dataand then compare them with the
median ratios for paint manufacturers provided by a commercialcredit firm:
Business Decision Problem Crescent Paints, Inc., a paintmanufacturer, has been in business for
five years. The company has had modest profits and hasexperienced few operating difficulties
until this year, 2016, when president Alice Becknell discussedher companyâs working capital
problems with you, a loan officer at Granite Bank. Becknellexplained that expanding her firm has
created difficulties in meeting obligations when they come dueand in taking advantage of cash
discounts offered by manufacturers for the timely payment of thecompanyâs accounts payable.
She would like to borrow $50,000 from Granite Bank. At yourrequest, Becknell submits the fol-
lowing financial data for the past two years:
2016 2015
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $2,000,000$1,750,000
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 1,320,000 1,170,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 42,000 33,600
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 22,000 18,000
December 31, 2014, data. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1,100,000
Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 205,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 350,000
CRESCENT PAINTS, INC.
Balance Sheets
Dec. 31, 2016 Dec. 31, 2015
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $ 31,000 $ 50,000
Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 345,000 250,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 525,000 425,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 11,000
6,000
Total Current Assets . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 912,000 731,000
Plant assets (net) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 483,000 444,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $1,395,000 $ 1,175,000
CRESCENT PAINTS, INC.
Balance Sheets
Dec. 31, 2016 Dec. 31, 2015
Liabilities and Stockholdersâ Equity
Notes payableâbanks. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . $ 100,000 $ 35,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 244,000 190,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 96,000
85,000
Total Current Liabilities. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 440,000 310,000
10% Mortgage payable . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 190,000
250,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 630,000 560,000
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 665,000 535,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000
80,000
Total Stockholdersâ Equity . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 765,000 615,000
Total Liabilities and Stockholdersâ Equity . . . . . . . . . . .. . . . . . . . . $1,395,000 $1,175,000
Calculate the following items for both years from the given dataand then compare them with the
median ratios for paint manufacturers provided by a commercialcredit firm:
Median Ratios for
Paint Manufacturers
1.
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 2.5
2.
Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1.3
3.
Accounts receivable turnover. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 8.1
4.
Average collection period. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 44.9 days
5.
Inventory turnover . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.9
6.
Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 0.78
7.
Return on assets . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.8%
8.
Return on sales . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2.4%
Calculate the following items for both years from the given dataand then compare them with the
median ratios for paint manufacturers provided by a commercialcredit firm:
