LL Sams Company & Melinda Garcia Services-Loan Analysis
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Assignment Name: Unit 1 Individual Project
Details: The proprietors of two businesses, L.L. Sams Company and Melinda Garcia Career Services, have sought business loans from you. To decide whether to make the loans, you have requested their balance sheets. Click Unit 1 Balance sheets to view.
Solely on the basis of these balance sheets, to which entity would you be more comfortable lending money? Explain fully, citing specific items such as the accounting equation and amounts from the balance sheets. In addition to balance sheet data, what other information would you require? Be specific.
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Objective: State the basic accounting equation and explain the meaning of assets, liabilities, and owner's equity.
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Solution Summary
Deciding which company to loan money to based upon given financials
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In answering this question, you first need to look at the balance sheet for a few key numbers. Total assets and liabilities are similar across the two companies ($211,500 and $244,000) so we can analyze things fairly evenly without must adjustment.
Think about liabilities versus equity. More equity means that the shareholders hold a larger financial stake in the business and are less likely to default. Of LL Sam's total liabilities and equity, ~86% is in the form of equity. For Garcia, it's ~29%. On the surface, it looks like the shareholder(s) for LL Sams have more of a personal financial stake and would be less likely to default, everything else held constant.
Next, think about leverage. Look at total liabilities to total ...
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