Business Environment and Recording Transactions

Essay by rococoCollege, UndergraduateA+, February 2007

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At first glance looking and comparing both balance sheets, I was almost ready to give Melinda Garcia the loan based on her total assets of $244,000. LL Sam's total assets of $211,500 did not impress me as much as Melinda's total assets. Then I took a closer look and started adding up Accounts receivable vs accounts payable for LL Sam's.

LL Sam's has $2,000.00 in equity each month compared to Melinda Garcia's Accounts receivable vs her accounts payable of $1,000.00 a month. LL Sam's accounts receivable of $14,000.00 is twice as much as Melinda's $7,000.00 a month. LL Sam's accounts payable is $12,000.00 compared to Melinda Garcia's accounts payable which is $6,000.00 a month.

Based on both balance sheets I would give LL Sam's the business loan. The reason why is because Melinda Garcia only has $1,000.00 a month in equity compared to LL Sam's $2,000.00 equity a month. I also looked at Total liabilities LL Sam's has $30,000.00

compared to Melinda Garcia who has $174,000.00. Melinda Garcia's total liabilities are almost six times higher than LL Sam's. LL Sam's total capitol is $181,000 vs Melinda Garcia's capitol of $70,000.00.

I would definitely grant a loan to LL Sam's over Melinda Garcia based on the debt ratio, which is the "ratio of total liabilities to total assets. Shows the proportion of a company's assets that it has financed with debt." (Hongren, Harrison, & Bamber, 2005). I would also require a business history report which should include how long has each business been in operation. I would want to see balance sheets going back at least six months. I would also inquire with the better business bureau to see if the company has had any complaints against them.

This could mean a loss of business for a company, which in turn...