Unit 1 Individual Project Lending Money

Essay by SouthernArkiegalCollege, UndergraduateA+, September 2006

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Solely on the basis of these balance sheets, to which entity would you be more comfortable lending money? Explain fully, citing specific items such as the accounting equation and amounts from the balance sheets. In addition to balance sheet data, what other information would you require? Be specific.

To first glance at the balance sheet one might jump and give the loan to Melinda Garcia because of the large amount that she has for her total assets. I took my time and reviewed each balance sheet. Although while at first glance it does seem that Garcia will get the loan, one must take the time and dissect the remaining balance sheet. Garcia's account payable is only a mere $6,000 compared to that of L.L. Sams who is paying twice that much. Still that alone isn't enough to convince me to grand Garcia the loan.

I would lend the money to L.L.

Sams Company. My reasoning's for lending money to L.L. Sams is simple. While L.L. Sams' accounts payable is twice the amount of Garcia's I looked at the accounts receivable. Garcia is barely squeaking by receiving only $7,000. That is just $1,000 more than she is paying out. Not much room for error or to stretch. L.L. Sams has accounts receivable at $14,000 making a difference of $2,000 between his accounts payable and receivable. Not much more than Garcia, yet his total liabilities are dramatically less than Melinda Garcia's. L.L. Sams total capitol is phenomenally higher than Melinda Garcia. L. L. Sams capitol is $181,500 compared to Melinda Garcia's $70,000. The total debt to ratio method works in L.L. Sams favor and I would grand that company the loan.

One thing I would require each company to furnish me with is verification of how long their business has...