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