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E24-4 (Ratio Computation and Analysis; Liquidity) As loan analyst for Madison Bank, you have beenpresented the following information.Plunkett Co. Herring Co.AssetsCash $ 120,000 $ 320,000Receivables 220,000 302,000Inventories 570,000 518,000Total current assets 910,000 1,140,000Other assets 500,000 612,000Total assets $1,410,000 $1,752,000Liabilities and Stockholders’ EquityCurrent liabilities $ 300,000 $ 350,000Long-term liabilities 400,000 500,000Capital stock and retained earnings 710,000 902,000Total liabilities and stockholders’ equity $1,410,000 $1,752,000Annual sales $ 930,000 $1,500,000Rate 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. Inasmuchas your bank has reached its quota for loans of this type, only one of these requests is to be granted.InstructionsWhich of the two companies, as judged by the information given above, would you recommend as thebetter risk and why? Assume that the ending account balances are representative of the entire year.
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