2A2Z EASTON BANK HAS RECEIVED LOAN APPLICATIONS FROM THREE COMPANIES...
47.
CSO: 2A2b
LOS: 2A2z
Easton Bank has received loan applications from three companies in the computer service
business and will grant a loan to the company with the best prospect of fulfilling the loan
obligations. Specific data, shown below, has been selected from these applications for
review and comparison with industry averages.
CompGo
Astor
SysGen
Industry
Total sales (millions)
$4.27
$3.91
$4.86
$4.30
Net profit margin
9.55%
9.85%
10.05%
9.65%
Current ratio
1.82
2.02
1.96
1.95
Return on assets
12.0%
12.6%
11.4%
12.4%
Debt/equity ratio
52.5%
44.6%
49.6%
48.3%
Financial leverage
1.30
1.02
1.56
1.33
Based on the information above, select the strategy that would fulfill Easton’s objective.
a.
Easton should not grant any loans as none of these companies represents a good
credit risk.
b.
Grant the loan to CompGo as all the company’s data approximate the industry
average.
c.
Grant the loan to Astor as both the debt/equity ratio and degree of financial
leverage are below the industry average.
d.
Grant the loan to SysGen as the company has the highest net profit margin and
degree of financial leverage.