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Home / Questions / Debt analysis   Springfield Bank is evaluating Creek​Enterprises, which has requested a $...

Debt analysis   Springfield Bank is evaluating Creek​Enterprises, which has requested a $3,740,000 ​loan, to assess the​ firm's financial leverage and financial risk. On the basis of the debt ratios

Debt analysis   Springfield Bank is evaluating Creek​Enterprises, which has requested a

$3,740,000

​loan, to assess the​ firm's financial leverage and financial risk. On the basis of the debt ratios for​ Creek, along with the industry averages and​ Creek's recent financial​ statements, evaluate and recommend appropriate action on the loan request.

Industry averages

  Creek Enterprises Income​ Statement:

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Debt ratio

0.47

 

Times interest earned ratio

7.38

  Creek Enterprises Balance​ Sheet:

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​Fixed-payment coverage ratio

2.07

 

Creek​ Enterprises's debt ratio is

nothing.

​ (Round to two decimal​ places.)

Creek Enterprises Income Statement for the Year Ended December​31, 2019

 

Sales revenue

 

$29,999,000

​Less: Cost of goods sold

 

20,972,000

Gross profits

 

$9,027,000

​Less: Operating expenses

   

Selling expense

$3,015,000

 

General and administrative expenses

1,778,000

 

Lease expense

186,000

 

Depreciation expense

1,042,000

 

Total operating expense

 

6,021,000

Operating profits

 

$3,006,000

​Less: Interest expense

 

965,000

Net profits before taxes

 

$2,041,000

​Less: Taxes

​(rate=21%​)

 

428,610

Net profits after taxes

 

$1,612,390

​Less: Preferred stock dividends

 

89,250

Earnings available for common stockholders

 

$1,523,140

Creek Enterprises Balance Sheet December​ 31, 2019

 

Assets

 

Liabilities and​ Stockholders' Equity

Current assets

   

Current liabilities

 

Cash

$1,046,000

 

Accounts payable

$8,039,000

Marketable securities

2,962,000

 

Notes payable

8,005,000

Accounts receivable

12,010,000

 

Accruals

521,000

Inventories

7,480,000

 

Total current liabilities

$16,565,000

Total current assets

$23,498,000

 

​Long-term debt​ (includes

 
     

financial​ leases)**

$19,231,000

Gross fixed assets​ (at cost)*

   

​Stockholders' equity

 

Land and buildings

$10,972,000

  Preferred stock

​(25,500

 
        ​ shares,

$3.50

​dividend)

$2,451,000

Machinery and equipment

20,524,000

  Common stock

​(1.05

million
 

Furniture and fixtures

8,029,000

     shares at

$5.50

​par)

5,775,000

Gross fixed assets

$39,525,000

 

​Paid-in capital in excess of

 
     

   par value

4,008,000

​Less: Accumulated depreciation

12,955,000

 

Retained earnings

2,038,000

Net fixed assets

$26,570,000

 

Total​ stockholders' equity

$14,272,000

     

Total liabilities and

 

Total assets

​$50,068,000

 

  ​ stockholders' equity

$50,068,000

​*The firm has a​ 4-year financial lease requiring annual​ beginning-of-year payments of

$186,000.

Three years of the lease have yet to run.
​**Required annual principal payments are

$750,000.

Apr 25 2021 View more View Less

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