Question: Based upon the financial ratio analysis you will have performed on Milan Fashions, would do...

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Question: Based upon the financial ratio analysis you will haveperformed on Milan Fashions, would do you recommend that thereshould be an approval of the loan request? I want you to state youranalysis in a detailed memorandum to me by Monday of next week. Iwould like to discuss your analysis and hear your ideas on MilanFashions in a meeting on Tuesday. The clients will be in ouroffices next Friday to discuss their loan request. Please feel freeto contact me if there are any questions on this matter.
Industry Financial Radio Standards
Ratio
Industry Norm
Milan Fashions Ratios2015
Evaluation*
Current ratio
4.5 times
13.25
Good
Long-term debt-to-Equity ratio
12%
5.36%
Good
Debt-to-Equity ratio
30%
10.08%
Good
Total Debt ratio
20%
9.16%
Good
Financial leverage ratio
1.10
1.1
Fair
Inventory turnover
7 times
6 times
Poor
Fixed asset turnover
1.8 times
2.99 times
Good
Debt-to-Capital ratio
43.4%
10.32%
Good
Interest coverage ratio
5.0 times
18 times
Good
Return on Assets
8.4%
2.15%
Poor
Ratio
Industry Norm
Milan Fashions Ratios2016
Evaluation*
Current ratio
4.5 times
21.54
Good
Long-term debt-to-Equity ratio
12%
6.92%
Good
Debt-to-Equity ratio
30%
9.86%
Good
Total Debt ratio
20%
8.97%
Good
Financial leverage ratio
1.10
1.1
Fair
Inventory turnover
7 times
6 times
Poor
Fixed asset turnover
1.8 times
2.6 times
Good
Debt-to-Capital ratio
43.4%
10.17%
Good
Interest coverage ratio
5.0 times
20 times
Good
Return on Assets
8.4%
2.22%
Poor

Answer & Explanation Solved by verified expert

4.1 Ratings (547 Votes)

Answer I have presented the comparison as per below picturewhich will make analysis more easyNow based on ratio we can say that as the ratio related toLoans seems good and are appropriately covered the loan approvalcan be taken into considerationFirst we need to more focus on Interest Coverageratio first which shows the company interest paymentcapacity or how easily company can pay interest on outstandingLoan The ratio is calculated by dividing a companys See Answer

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Ratio	Industry Norm	Milan Fashions Ratios2015	Evaluation*
Current ratio	4.5 times	13.25	Good
Long-term debt-to-Equity ratio	12%	5.36%	Good
Debt-to-Equity ratio	30%	10.08%	Good
Total Debt ratio	20%	9.16%	Good
Financial leverage ratio	1.10	1.1	Fair
Inventory turnover	7 times	6 times	Poor
Fixed asset turnover	1.8 times	2.99 times	Good
Debt-to-Capital ratio	43.4%	10.32%	Good
Interest coverage ratio	5.0 times	18 times	Good
Return on Assets	8.4%	2.15%	Poor

Ratio	Industry Norm	Milan Fashions Ratios2016	Evaluation*
Current ratio	4.5 times	21.54	Good
Long-term debt-to-Equity ratio	12%	6.92%	Good
Debt-to-Equity ratio	30%	9.86%	Good
Total Debt ratio	20%	8.97%	Good
Financial leverage ratio	1.10	1.1	Fair
Inventory turnover	7 times	6 times	Poor
Fixed asset turnover	1.8 times	2.6 times	Good
Debt-to-Capital ratio	43.4%	10.17%	Good
Interest coverage ratio	5.0 times	20 times	Good
Return on Assets	8.4%	2.22%	Poor