L.L. Sams Company Balance Sheet as of August 31, 20X4 is shown below:
Cash $9,000 Accounts Payable $12,000
Accounts Receivable $14,000 Note Payable $18,000
Merchandise Inv. $85,000 Total Liabilities $30,000
Building $80,000 Owner's Equity $181,500
Total assets $211,500 Liab. & Equity $211,500
Analysis provides the following information: Current assets are $108,000. Current liabilities are $30,000. The current ratio is 3.6 to 1. The quick ratio is .7667 to 1. Total liabilities are $30,000 and equity is $181,500 so the company has a debt to equity ratio of .1653 to 1. This Balance Sheet provides only limited information about L.L. Sams' financial condition. Additional information is needed to make an informed decision about a loan. It would be helpful to know if the company's financial statements are audited. It would be important to review at least three consecutive years of Balance Sheets for the purpose of trend and comparative analysis. The company's assets are concentrated in merchandise inventories so the loan officer would want to calculate the inventory turnover ratio. L.L. Sams might be turning inventory quickly, or it might be the case that inventory levels are high because the company has trouble selling its inventory.
Additional information needed to evaluate this loan applicant would include Income Statements for the last three years, as well as the Statements of Cash Flow. In addition, as part of their due diligence the loan officer would need to read and evaluate the explanatory notes to these financial statements. The loan officer would also want to know if any or all of the company's assets were pledged to creditors, and whether these creditors had perfected their security interest by filing a UCC-1 financing statement.
The Balance Sheet for Melinda Garcia Career Ser
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