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Financial analysis for approving credit line

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Using ratio analysis and the attached tables, answer the following questions. Would you approve this customer for a commercial credit line? If so, how much credit line? If not, why would you deny credit to this customer? Analyze the total financial statement and show all ratios utilized for the credit decision, and show work. Use profitability ratios, EBITDA ratios, Leverage ratios, and all liquidity ratios.

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I will not be approving this customer for a commercial credit line due to various reasons.

First of all, if we evaluate the health of the organization from top line revenues and bottom line profitability, the revenues of the company has significantly declined in the last financial year and the company has shown negative profits in the last couple of years. There has been an alarming decline in the gross profit margin as well. It reflects that deteriorating financial condition of the organization. The organization is not able to sustain its revenues and profit margins in the last couple of years, which pose a major doubt on its ability to generate sufficient case for repaying the lenders ...

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The solution conducts financial analysis of a company for approving credit line.

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Financial Analysis - Fast Track Sports Company

The Fast Track Sports Company was started by John Ross early in 2012. Initial capital was acquired by issuing shares of common stock to various investors and by obtaining a bank loan. The company operates a retail store that sells sporting goods and related apparel. Business was so good during the first year of operation that John is considering opening a second store on the other side of town. The funds necessary for expansion will come from a new bank loan. In order to approve the loan, the bank requires financial statements.

John asks for your help and presents you with the following information for the year ending December 31, 2012:

1). Cash receipts consisted of the following:
a). From customers $360,000
b). From issue of common stock 100,000
c). From bank loan 100,000

2). Cash disbursements were as follows:
a). Purchase of inventory $300,000
b). Rent 15,000
c). Salaries 30,000
d). Utilities 5,000
e). Insurance 3,000
c). Purchase of equipment & furniture 40,000

3). The bank loan was made on March 31, 2012. A note was signed requiring payment of interest and principal on March 31, 2013. The interest rate is 12%.

4). The equipment and furniture were purchased on January 3, 2012, and have an estimated useful life of 10 years with no anticipated salvage value. Depreciation is based on the straight-line method.

5). Inventories on hand at the end of year cost $100,000.

6). Amounts owed at December 31, 2012 were as follows:
a). To suppliers of inventory $20,000
b). To the utility company 1,000

7). Rent on the store building is $1,000 per month. On December 31, 2012, four months' rent was paid in advance.

Required:
Prepare the Fast Track Sports Company's Income Statement and Balance Sheet for its first accounting period under the accrual basis of accounting. Assume that the company is not subject to federal, state, or local income tax.

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