Office Use Only A

Semester One 2023

Take Home Assignment

Faculty of Business and Economics

EXAM CODES: BFF3841 TITLE OF PAPER: Credit Analysis and Lending Management – PAPER 1

THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)

 Caulfield  Clayton  Parkville  Peninsula  Monash Extension  Off Campus Learning  Malaysia  Sth Africa

 Other (specify) AUTHORISED MATERIALS CALCULATORS X YES  NO (Only HP 10bII+ or Casio FX82 (any suffix) calculator permitted)

THIS TAKE HOME ASSIGNMENT HAS TWO

PARTS. PLEASE MAKE SURE YOU ANSWER BOTH PARTS OF THIS ASSIGNMENT

Question 1 is worth 20 marks. Question 2 is worth 15 marks. 1000-word limit

QUESTION 1 of 2 Required: Critically evaluate the loan request outlined below and recommend whether you would lend

the requested amount. Your answer must indicate the relevant facts of the case; the

appropriate concerns with this loan proposal and provide the relevant recommendations.

The Bank of Monash has just received a loan proposal from an established client seeking to

buy a local mixed grocery store / convenience food store. John and Joan Jones have been

customers with the Bank of Monash for the past seven years. Until two years ago they were

the hard-working owners of the local dry cleaners and laundromat. Their business was well

run and profitable, mainly servicing the needs of the local university staff and student

population. As a result of the skills learned while cleaning graduation gowns, their business

had also built up a profitable side line in cleaning wedding gowns and similar formal clothes.

After working long hours for the previous five years John and Joan had sold their dry cleaners

and took a long-overdue extended holiday. After their long holiday John and Joan have worked

as managers in several other cleaning businesses specialising in formal wear. Now feeling

refreshed and ready to meet the challenges of running a small business again, John and Joan

seeking to borrow from the Bank of Monash to buy another small business serving the needs

of the Monash community. They are seeking to borrow $220,000 as a five-year term loan as

well as an overdraft (line of credit) of $25,000

The business the John and Joan are seeking to buy is Mario’s Monash Munchies (MMM).

MMM has been part of the Monash community since 1958. The business has changed hands

a number of times since it was established, the well-recognised name has stayed with the

business. MMM is a small grocery and convenience store that provides a range of products to

Monash community as well as a limited range of fast food items such as hot pies, coffee and

soups. While the prices charged by MMM are a bit higher that the supermarket prices, MMM

offers the advantage of being on campus and open for longer hours during semester (MMM

has a long-term lease arrangement with the university student union). This has made MMM

something of a Monash University institution, particularly with students dropping in after

evening class to have a cup of soup to eat when catching the bus or train home. The most

recent financial statements and balance sheet from MMM for the last three years together with

a forecast for 2024 are provided below.

Mario’s Monash Munchies

Balance Sheets $ $ $ $ As at end of Year 2021 2022 2023 2024 forecast

Current Assets

Cash 25,600 27,000 26,500 28,000

Debtors 33,200 34,000 33,500 31,000

Stock 200,000 215,000

230,000 250,000

Total Current Assets 258,800 276,000

290,000 309,000

Current Liabilities 2021 2022 2023 2024 forecast

Creditors 118,000 122,000

126,000 115,000

Bank Overdraft 25,000 17,000 18,000 25,000

Current Tax 75,000 95 400 600

Total Current Liabilities 218,000 139,095

144,400 140,600

Net Current Assets 40,800 136,905 145,600 168,400

Fixed Assets 2013 2014 2015 2016 forecast

Fixed Assets and Leasehold 225,000 250,000

265,000 270,000

Total Fixed Assets 225,000 250,000

265,000 270,000

Long Term Liabilities

Mortgage Loan 125,000 120,000

115,000 220,000

Total Long term Liabilities 125,000 120,000

115,000 220,000

Net Assets 140,800 266,905

295,600 218,400

Financed by: 2021 2022 2023 2024 forecast

Issued Share Capital 32,800 32,800 32,800 32,800

Accumulated Reserves 10,000 108,000 234,105 262,800

Profit and Loss Account 98,000 126,105 28,695 – 77,200

Total Capital 140,800 266,905

295,600 218,400

Total Assets 483,800 526,000

555,000 579,000

Total Liabilities 343,000 259,095

259,400 360,600

Total Liabilities and capital 483,800 526,000

555,000 579,000

Profit & Loss Account Summary

2021 2022 2023 2024 forecast

Sales 3,440,000 3,500,000

3,681,685 3,845,128

Cost of Goods Sold (including labor) 3,280,000 3,312,715

3,608,000 3,879,378

Sponsorships 45,000 45,000 30,000 15,000

Interest 17,000 16,180 14,990 27,950

Gross Profit 115,000 142,285

43,685 – 49,250

Net Profit 98,000 126,105 28,695 – 77,200

Ratios and other information 2021 2022 2023 2024 forecast

Current Ratio 1 to 1.19 1.98 2.01 2.20 Acid Test 1 to 0.27 0.44 0.42 0.42 Credit Given (days) 3.52 3.55 3.32 2.94 Credit Taken (days) 13.13 13.44 12.75 10.82 Stock Turnover (days) 21.22 22.42 22.80 23.73 Gross margin 3.3% 4.1% 1.2% -1.3% Net margin 2.8% 3.6% 0.8% -2.0% Interest Cover (times) 6.76 8.79 2.91 -1.76

Net Gearing % per $1 of equity 190% 97% 88% 165% Net working assets to sales % 1% 4% 4% 4% Retained Profits to sales 2.8% 3.6% 0.8% -2.0%

QUESTION 2 of 2. You are part of the credit analysis team of medium sized bank. It is a tradition that each week a credit analyst leads a discussion regarding the implications for credit risk management of a contemporary media issue. It is your turn and your senior manager has allocated you the article below. Your task is to provide an integrated and analytical discussion of this media article and its implications for credit risk management. Word Limit 1000 words.