Springfield National Bank
The "Yes" People
1324 Mortgage Way
Springfield, TX 60604
John Dawson Jr.
Dawson Stores
8843 Freeload Circle
Springfield, TX 60604
February 13, 1984
Dear Mr. Dawson,
Thank you for your application for a $100,000 line of credit. We have always enjoyed the relationship with your chain of stores and appreciate your confidence in our bank. The information you provided was extremely helpful in determining whether to approve your line of credit. Unfortunately, I'm afraid to inform you that your application was not approved. I hope the reasons listed below will help you understand the reasons for our conclusion.
In analyzing Dawson's liquidity over the last few years, several red flags were raised. Although your working capital (current assets ? current liabilities) were on the plus side, your current ratio and you acid-test ratios were less than adequate, questioning Dawson's ability to meet its current financial obligations.
1. CURRENT RATIO
In judging your bill paying ability, we conducted a trend analysis of your current ratio. Essentially this measures your current assets divided by your current liabilities. If the current assets of Dawson's are more than twice the current liabilities, then your company is generally considered to have good short-term financial strength. Unfortunately, as you can see Mr. Dawson, our findings revealed a diminishing ratio over the last four years (any ratio below 2 is insufficient):
1983 Total Current Assets / Total Current Liabilities (603765/360968) = 1.67
1982 Total Current Assets / Total Current Liabilities (538466/308755) =&n ...