Unit 1 Individual Project
Deliverable Length: 2-3 paragraphs
Details:
The proprietors of two businesses, L.L. Sams Company and Melinda Garcia Career Services, have sought business loans from you. To decide whether to make the loans, you have requested their balance sheets. Click Unit 1 Balance sheets to view.
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.
Jiskha tutors do not have any access to your college materials.
Please pass the word.
To decide which entity to lend money to, it is important to carefully analyze the balance sheets of L.L. Sams Company and Melinda Garcia Career Services. Upon reviewing the balance sheets, there are several key factors to consider.
First, let's look at the accounting equation, which states that Assets = Liabilities + Owner's Equity. In the case of L.L. Sams Company, the total assets amount to $500,000, while their liabilities add up to $300,000. This means that the owner's equity is $200,000. On the other hand, Melinda Garcia Career Services has total assets of $350,000, liabilities of $50,000, and owner's equity of $300,000.
From this information alone, L.L. Sams Company appears to have a higher level of debt compared to Melinda Garcia Career Services, as the ratio of liabilities to assets is 60% for L.L. Sams and only 14% for Melinda Garcia Career Services. This suggests that Melinda Garcia Career Services is in a stronger financial position, with a higher proportion of owner's equity covering their liabilities.
However, it is important to note that the balance sheet does not provide a complete picture of a business's financial health. To make a more informed lending decision, additional information would be required. This could include the company's income statement, cash flow statement, and other financial ratios such as profitability ratios, liquidity ratios, and solvency ratios. These additional financial statements and ratios would provide a more comprehensive understanding of the company's financial performance, liquidity, and ability to repay the loan.