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    (Ratio Computation and Analysis; Liquidity) As loan analyst for Utrillo Bank, you have been presented the following information.
    Toulouse Co. Lautrec Co.
    Cash $ 120,000 $ 320,000
    Receivables 220,000 302,000
    Inventories 570,000 518,000
    Total current assets 910,000 1,140,000
    Other assets 500,000 612,000
    Total assets $1,410,000 $1,752,000
    Liabilities and Stockholders' Equity
    Current liabilities $ 305,000 $ 350,000
    Long-term liabilities 400,000 500,000
    Capital stock and retained earnings 705,000 902,000
    Total liabilities/stockholders equity$1,410,000 $1,752,000
    Annual sales $ 930,000 $1,500,000
    Rate of gross profit on sales 30% 40%
    Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Inasmuch as your bank has reached its quota for loans of this type, only one of these requests is to be granted.
    Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

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    Solution Summary

    The solution explains how to determine the which company is a better risk using ratio analysis