Quant Project

Reflection

I enjoyed performing ratio analysis on these two hypothetical companies mostly for the opportunity to apply what we were learning in class and to build upon my understanding of financial statements. Creating financial statements seems to me to be the core function of accounting. Calculating ratios and comparing companies really extended that function into a real world application with financial consequences. Using this analysis is a way to make better informed and more profitable decisions. 

Overview:

You have recently been promoted to loan officer at Northeast Bank.  In your position as loan officer, all loan applications are submitted to you and it is your responsibility to determine whether companies should be awarded or denied bank loans.  

Northeast Bank has recently limited the amount of loans which it extends to companies and your supervisor has informed you that although you have two companies, Reflect Corporation and Tranquility, Inc., applying for a loan, only one company will be granted the loan.  

Presented in the attached Appendix A is Selected Financial Information for Reflect Corporation and Tranquility, Inc.

Task:

1. Given the Selected Financial Information in Appendix A for Reflect Corporation and Tranquility, Inc., respectively, compute the following ratios for each company: 

Liquidity

1. Current Ratio                                                                                     
2. Receivables Turnover (including converting to Average Collection Period)
3. Inventory Turnover (including converting to Days in Inventory)

Profitability

1. Profit Margin
2. Asset Turnover
3. Return on Assets

Solvency

1. Total Debt to Total Assets
2. Times Interest Earned