Question
A significant matter to consider in the case is the bank loan procured by MI, which necessitates an annual financial statement audit. The bank may
A significant matter to consider in the case is the bank loan procured by MI, which necessitates an annual financial statement audit. The bank may enforce debt constraints like financial ratios e.g. the current ratio and debt-to-equity ratio. MI could breach the loan agreement if it fails to satisfy these ratios, leading to early loan repayment or other consequences. It is critical for the Controller to keep track of these ratios and ensure their compliance to prevent adverse outcomes from the bank. The other crucial aspect is the possible sale of the land and building purchased in 2020, having a significant effect on the financial statements based on the final sale price. It is essential to carefully evaluate the asset's valuation and ensure its accurate recording on the financial statements
The big-picture issue indicates that banks were advised to make a particular percentage of profits. Therefore, employees are more likely to capitalize on these expenditures to prevent them from being charged to the profit and loss account, which would lower net income. It was expressly mentioned in the loan financing agreement that the company would control expenses and increase profits to a specific percentage of total revenue each year. The bank might recall the loan if the intended level of profits still needs to be realized. Also, staff can look for bonus payments as they strive to manage earnings to reach the desired profit level under the guidance of the board of directors and shareholders. As a result, there is a tendency to make at least the agreed-upon level of earnings.
Question: What does this mean for the company? For example, if there is a restrictive covenant and after the suggested adjustments it appears to be in breach, then the underlying bank debt would be repayable immediately
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