2A2Z MARBLE SAVINGS BANK HAS RECEIVED LOAN APPLICATIONS FROM THREE CO...

50.

CSO: 2A2b

LOS: 2A2z

Marble Savings Bank has received loan applications from three companies in the auto

parts manufacturing business and currently has the funds to grant only one of these

requests. Specific data, shown below, has been selected from these applications for

review and comparison with industry averages.

Bailey

Nutron

Sonex

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 should be the most beneficial to

Marble Savings.

a.

Marble Savings Bank should not grant any loans as none of these companies

represents a good credit risk.

b.

Grant the loan to Bailey as all the company’s data approximate the industry

average.

c.

Grant the loan to Nutron as both the debt/equity ratio and degree of financial

leverage are below the industry average.

d.

Grant the loan to Sonex as the company has the highest net profit margin and

degree of financial leverage.