Group Assignment 1

Assume you are a bank loan officer working for Bank of Montreal (BOM) for many years. Most of your clients are well known and reputable but just recently you have been approached by two new prospective clients Rich Corporation and Big Corporation for a large loan. In order to mitigate risks and make a reasonable decision, you asked both prospective clients to provide their statement of financial position (balance sheet) for 2021. Based on only balance sheet, your decision will be made by end of next week.

Below is what you received from the two prospective clients:

Rich Corporation Statement of Financial Position December 31, 2021 (in thousands)
Assets		Liabilities
Cash	$11,000	Accounts Payable	$13,000
Accounts Receivable	4,000	Notes Payable due 2024	377,000
Furniture	36,000	Total liabilities	$390,000
Software	79,000
Computers	300,000	Shareholders Equity
		Shareholders equity	$40,000
		Total liabilities and
Total assets	$430,000	shareholders equity	$430,000

Big Corporation Statement of Financial Position December 31, 2021 (in thousands)
Assets		Liabilities
Cash	$9,000	Accounts Payable	$12,000
Accounts Receivable	24,000	Loan Payable due 2024	28,000
Merchandise inventory	85,000	Total liabilities	$40,000
Furniture	9,000
Building	82,000	Shareholders Equity
Land	14,000	Shareholders equity	$183,000
		Total liabilities and
Total assets	$223,000	shareholders equity	$223,000

Answer the following questions:

1. To which company would you be more comfortable lending money? Explain fully, linking to specific financial statement items and amounts from the respective balance sheets. Use financial ratios and other financial statement analysis tools that will increase your comfort level in your decision-making process. (30 marks)

2. Is there other financial information you would consider before making your decision? Be specific.

(20 marks)

3. Is there other nonfinancial information you would consider before making your decision? Be specific. (20 marks)

4. Write your response to Rich Corporation. (15 marks)

5. Write your response to Big Corporation. (15 marks)