Introduction to financial accounting case studies
Name : Sabah El Gaouej
Poblem 13-5 page 748
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2. Heartland’s ratios evaluation
The current and quick ratios measure the ability of the firm to easy liquidize - in both measures Heartland is significantly lower than the industry average, and so this may be a problem. The inventory, asset, and A/R turnover measures collectively reflect how well the firm is utilizing its assets. Heartland is managing it inventory and receivables better than the industry average, and asset turnover (the collective measure) is the same as the industry average.
Financial leverage is measured with the Debt/equity ratio and times interest earned measure. Heartland relies more heavily on debt (rather than equity) and as a result is suffering a low times interest earned measure. These two are clearly correlated because you will owe more interest if you carry a larger debt load.
Profitability is measured through ROS, ROA, and ROE. In general, we can say that Heartland is not as profitable as an average company that has a similar asset and liability structure.

3. Bank decision making
I do not believe that the bank will approve the loan if it actually does use the survey data as a benchmark against Heartland's financial statements. Even if the loan is approved, it will include a higher interest rate, since the bank could loaning to Heartland as a risky venture.
The main objective of any loan officer is to ensure that the loan made can be repaid, plain and simple. However, this requires an understanding of four major areas of financial measures; financial leverage (long-term), liquidity potential (short-term), asset utilization (efficiency), and of course profitability. From the descriptions of performance in these areas in the previous