Konrath Company is considering extending credit to D

Hawk Compa
Konrath Company is considering extending credit to D. Hawk Company. L. Konrath Company
estimated that sales to D. Hawk Company would amount to $2 million each year. L. Konrath
Company, a wholesaler, sells throughout the Midwest. D. Hawk Company, a retail chain
operation, has a number of stores in the Midwest. L. Konrath Company has had a gross profit of
approximately 60% in recent years and expects to have a similar gross profit on the D. Hawk
Company order. The D. Hawk Company order is approximately 15% of L. Konrath Company’s
present sales. Data from recent statements of D. Hawk Company follow:Requireda. Calculate
the following for D. Hawk Company for 2009:1. Rate of return on total assets2. Acid-test ratio3.
Return on sales4. Current ratio5. Inventory turnoverb. As part of the analysis to determine
whether L. Konrath Company should extend credit to D. Hawk Company, assume the ratios
were calculated from D. Hawk Company statements. For each ratio, indicate whether it is a
favorable, an unfavorable, or a neutral statistic in the decision to grant D. Hawk Company credit.
Briefly explain your choice in each case.c. Would you grant credit to D. Hawk Company?
Support your answer with facts given in the problem.d. What additional information, if any,
would you want before making a final decision?Source: Materials identified as CFA Examination
I, June 4, 1988, June 6, 1987 and June 6, 1988 are reproduced with permission from the
Association for Investment Management and Research and the Institute of Chartered
FinancialAnalysts.
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Konrath Company is considering extending credit to D Hawk Compa
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