FINA 4343 Credit Analysis Case Study 1
1. Utilize the narrative, the Financial Statements, and the Industry Averages of Key Ratios. Prepare your own
Financial Statements within Excel with embedded formulas. All of the critical information is there.
2. Conduct your Group’s Credit Analysis by addressing each item from the previously provided Underwriting
Handout. Please include both historical and projected statements of cash flows, and EBITDA. It should also
include the key Fixed Charge Coverage ratio. This qualitative portion along with your in-depth understanding of
the Excel Workbook Financial Statements will enable your group (Loan Officers) to present your findings and
your opinions on granting or declining the loan requested by Anandam Manufacturing to the Mock Loan
Committee made up of Professor Lara and potentially your peers.
3. Clearly identify:
a. How much does Anandam Manufacturing need to borrow?
b. What will the loan proceeds to be used for?
c. What is the primary source of repayment?
d. Are there secondary sources?
i. Inventory, A/R, Fixed Assets (PP&E)
ii. Are Appraisals of Collateral required?
e. Tertiary sources?
ii. Federal Tax Returns
f. What covenants if any would you require?
g. Are there working capital, term, bridge, hybrid or other commercial loan type applications?
4. Make recommendations on terms and conditions that our Bank can impose/require of Anandam Manufacturing
to implement to secure the repayment of the credit. Consider loan covenants, lender requirements and/or
Your Presentation should be presented on PowerPoint with all group members speaking and explaining as part of the
group. Embedded Excel Spreadsheets and graphics are required. The qualitative & quantitative portions of your case
study should be printed for distribution to both Professors at the time of your presentation and emailed prior to the
beginning of class.
Resources to be utilized in group credit analysis:
Exhibits 12.3, 12.5, 13.8, 13.12 & 13.13
Chapter 14 PowerPoint Slide 2, Appendix I, Financial Ratios.
Types of Commercial Bank Offered Financing handout.
Commercial Loan Underwriting handout. Identify which items apply and how they relate to the Borrower.
Cash Flow Analysis. Cash-to-Cash Cycle.
Include Graphs & Charts.
Borrower as compared to their Competition.
Address 5 C’s of Credit.
********************DO NOT INCLUDE ANY UNNECESSARY INFORMATION***********
Wade’s Office Furniture Company
A credit analysis case study by Catherine Joslin
What is Wade’s Furniture Company?
Our client is Marcus Wade,the president and majority owner of Wade’s Office Furniture
Wade’s has been in business for 25+ years and a good customer of the bank for the last 10 years
Wade has requested a term loan of $400,000 to purchase new equipment
Wade has also requested an increase in the company’s credit line from $900,000 to $1.2 million
You’re Approved! But why?
Character: Mr. Wade has been a good customer of the bank for the past 10 years, not to mention that he also provided 3 years of historical income statement and balance sheet data(2011-2013), and also provided 2 years of pro forma data (2014-2015).
Capacity : Mr.Wade has been in business for more than 25 years and has backlogged orders totaling $250,000 as well as a 52% increase in sales for 2013
Capital: Mr. Wade has backorders worth $250,000 and sales projected to increase another 50%
Collateral: Mr.Wade’s inventory, store, accounts receivable, and equipment.
Condition: Conditions in regards to economy are looking good for office furniture
You’re Approved! But why? cont…
We approve Mr. Wade’s loan for a number of reasons. The first reason the loan was approved is the fact that sales have been going up. In 2013 Mr. Wade’s reported a 52% increase in sales, with sales projected to increase another 50% by 2014. Not only that but Mr. Wade also has backlogged orders which are valued at $250,000. Not only that but Mr.Wade also has good collateral in the form of not only his inventory but also his building from which he conducts his business. Another reason why the loan was approved is because Mr.Wade is a man of great character. Being a good customer of the bank for the last 10 years, and running his business for the last 25 years. Due to all these reasons we have elected to approve Mr. Wade’s request for a term loan, and to increase his credit line from $900,000 to $1.2 million dollars.
Let’s look at the income statement
Cash Flow Statement
But does it balance?
Wade’s Liquidity Ratio shows us that he is fully capable of paying off his liabilities, this gives us assurance that he will pay off his debt to us
Wade’s Activity Ratio shows us that he is able to convert his inventory to sales fairly easily and can turn over his sellable assets for revenue quickly
Wade’s Leverage Ratio is slightly high but he is a growing business and we can tell that even with a large amount of debt he is able to pay off current portions on time and easily
Wade’s Profitability Ratio is good, not great but we can see that he’s a steadily growing business and we like to see profitability and growth together
You can’t compare where you don’t compete
Wade’s office furniture competes with local and global office furniture brands, and even so he is seeing steady growth of sales and business over the years.
If we compare Wade to the market, his overall sales and inventory don’t quite reach his competitors, but his growth in those areas do.
We can see Wade’s Office Furniture is steadily growing as a business and will continue to bring in revenue
Wade better have my MONEY
Primary repayment source
Cash flow from ongoing operations
Secondary repayment source
Tertiary repayment source
1. cover page
2. description on wade and his business (FICO score, business model, history, loan request, reason)
3. 5 Cs, and why we would approve/disapprove
4. Income statement (picture)
5. cash flow statement (picture)
6. Balance sheet (picture)- ratios for days receivable, inventory turnover, if liabilities are heavily financed by debt
7. Whys of Liquidity, Activity, Leverage, and profitability ratios
8. RMA comparisons to market
9. primary, secondary, tertiary sources of repayment
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