does not want the collateral but will need all he can get if the eeds to prepare

Question

does not want the collateral but will need all he can get if the eeds to prepare a collateral schedule. He knows that the banker successful as expected. 6. P business is not as repare a list of questions to which you would need the answers. Be sure to explain the specifics of the questions as they relate to this case. a. What types of loan covenants would you require? b. Identify the bank's largest risks in making this loan. c. How would you structure the loan to protect the bank? d. What is your recommendation concerning the loan request? Conduct the analysis suggested by the above questions. What is your recommen- dation concerning the loan request? II. Performance of Chem-Co Coatings. Table 1 presents income statement and balance sheet data for Chem-Co Coatings, a producer of fertilizers used in agriculture, that recently bought a small manufacturing firm outside the United States. During 2 the firm instituted a national marketing campaign to inform agricultural busin 013 esses and indi Presley was pleased with sales in 2013, noting the 30 percent increase over 2012 sales. and commodity prices, Presley is anticipating a sharp pull-back in business 1. Using the data in Table 1, generate a cash-based income statement for Chem-Co ividual farmers of Chem-Co's new products. Chief executive officer Wynona with the economic recession and decline in U.S. and foreign agriculture for 2013. 2. Calculate days accounts receivable, inventory turnover, and days accounts payable for 2012 and 2013 and determine whether the use (source) of cash in working capital was a result of sales growth, credit policy, inventory policy, or trade credit policy. Did these turnover ratios improve or deteriorate? What was the resulting impact on cash flow? 3. Interpret the figures by evaluating the firm's CFO and key financial ratios. 4. Identify potential problems that the firm faces.

Explanation / Answer

4.Potential Proble the firm faces:

1 Cash Based income Statement for the yr ended 2013 Particulars Amount Net Sales $861 Change in accounts Receivables ($113) cash receipts from sales $748 Cost of Goods Sold ($680) Change in Inventory ($39) Change in accounts payable $17 cash purchases ($702) cash margin $46 Total Operating Expenses ($150) Depreciation and Amotization $26 Change in Prepaid Exp $3 Change in accruals $7 Change in other current assets and liabilities $0 Cash Operating Exp ($114) Cash Operating Profit ($68) Interest on Marketable securities $6 income on Long Term Invst $0 All other expenses and income $0 Cash Before interests and taxes ($62) Interest Exp-Bank Notes $0 interest Exp-Term Notes ($18) Income Tax reported ($5) Change in income tax payable $1 Change in deffered income tax $0 Cash from operations ($84) Interpretation:Negative cash flow means that during yr 2013 the cash outflows have been higher than the cash flows and this has occurred due to mismatch of income and expenditure 2 & 3 Current ratio CA/CL The current assets is $330 and CL is $297 Current Ratio $330/$297 1.11 Interpretation:The company is liquid enough to pay off its liabilities .It is not financially weak and the account receivables and inventiry is also high. Days accounts Receivable Accounts Receivables/Average daily sales The accounts receivable is $215 and the average daily sales is $861/365=2.35 $215/2.35 91.45 Interpretation:The firm is not using its assets well and the company policy is also decided. Inventory Turnover COGS/Inventory The cost of good sold is $680 and inventory is $104 $680/$104 6.54 Interpretation:The firm is efficiently managing its inventory. Average daily Purchases COGS+Change in Inventory/365 The cost of goods sold is $680 and and change in inventory is $104 $680+$104/365 2.14 Daily accounts payable Accounts Payable/average daily purchases The accounts payable is $50 and the avergae daily purchase is 2.14 $50/2.14 23.36 Interpretation: The firm is efficient in using the trade credit in financing its working capital and need less bank financing. Return on Equity Net Income/Total Equity Net Income is $14 and total equity is $425 $14/$425 0.033 Interpretation: Additional capital is required for the company to sustain competition. Total asset turnover Net Sales/average total assets The net sales is $861 and average total assets is $425 $861/$425 2.026 Interpretation: The sales are not sluggish.

4.Potential Proble the firm faces:

• The poor credit policy decreases the company profitbality and turnover.
• The company faces the economic set back becuase of economic recession and decline in uS.
• Also there was decrease in prices of commodities and decline in foreign agricultural market.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.