Question 1: Business Loan Case Study Awal Company is a large labor-intensive manufacturing company located in Arad Industrial Area, an industrial zone in Muharraq Governorate. Awal Company manufactures and sells disposable crockery, particularly cups, plates, forks, spoons, etc. made of plastic and polystyrene. About 70 percent of its workforce is foreign workers, with the majority comes from India and Bangladesh. The company, established in 2000, has been profitable since its fourth year of operation Currently, Awal Company serves the whole Bahrain. Although Awal Company supplies to wholesalers in large quantities, it also delivers directly to small operators, especially to canteens operating in factories located in Arad Industrial Area Subsequent to its potential market expansion, the management of Awal Company has decided to seek a credit facility from your Bank In the past Awal Company had relied on a few suppliers to finance a large part of its needs for raw materials. However, due to some reasons one of the main suppliers is in the process of winding-up (closing) Awal Company is considering seeking other alternative suppliers in China Awal Company will select your bank to borrow in order to expand and buy plastic machines and equipment needed by their production line at least for next five years. The company's two most recent balance sheets were presented to you in support of their credit facility request. In addition, the company's income statement for the year just ended was provided to support the loan request. These statements are as follows 2013 Awal Company Balance Sheet as at 31/12/13 and 31/12/14 Assets 2014 Cash BD 14.000 BD Marketable Securities 6,200 Account Receivable 33,000 Inventory 84 000 Prepaid Rent 1. 100 Total Current Assets BD 138,300 BD Net Plant and Equipment 270.000 Total Assets BD 408,300 BD 15,000 6,000 42,000 51,000 1.200 115,200 286,000 401,200 2014 2013 BD BD Liabilities and Equity Accounts Payable Notes Payable Accruals Total Current Liabilities Bonds Total Liabilities Ordinary Shares Retained Earnings Total Equity Total Liabilities & Equity 57,000 13,000 5,000 75,000 150,000 225,000 100,000 83,300 183,300 408,300 BD 48,000 15,000 6,000 BD 69,000 160,000 229,000 100,000 72,200 BD 172,200 BD 401,200 BD BD 600,000 460,000 140,000 Awal Company Income statement for the year ended 31/12/14 Sales BD Cost of Goods Sold Gross Profit BD Operating and Interest Expenses General & Administrative BD 30,000 Interest 10,000 Depreciation 30,000 Total Operating and Interest Expenses Earnings Before Taxes BD Taxes Net Income BD 70,000 70,000 27.100 42,900 Other information that you have collected from the Bloomberg includes the industry ratios. The ratios are as follows: Current Ratio Quick Ratio Average Collection Period Inventory Turnover Total Asset Turnover Fixed Asset Turnover Industry Average 1.8 0.9 20.0 70 Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity Debt Ratio Industry Average 25% 14% 10% 6% 12% 50% 1.2 1.8 Assuming Awal Company's Ordinary Shares are currently valued at BD 165,000 based on equity expert. To conduct an initial assessment on the company, you decided to use the Z-score At this preliminary stage what is your credit decision and why? Write limitations of Z-score. (8 marks) (LOS A1 B1 C1) Question 1: Business Loan Case Study Awal Company is a large labor-intensive manufacturing company located in Arad Industrial Area, an industrial zone in Muharraq Governorate. Awal Company manufactures and sells disposable crockery, particularly cups, plates, forks, spoons, etc. made of plastic and polystyrene. About 70 percent of its workforce is foreign workers, with the majority comes from India and Bangladesh. The company, established in 2000, has been profitable since its fourth year of operation Currently, Awal Company serves the whole Bahrain. Although Awal Company supplies to wholesalers in large quantities, it also delivers directly to small operators, especially to canteens operating in factories located in Arad Industrial Area Subsequent to its potential market expansion, the management of Awal Company has decided to seek a credit facility from your Bank In the past Awal Company had relied on a few suppliers to finance a large part of its needs for raw materials. However, due to some reasons one of the main suppliers is in the process of winding-up (closing) Awal Company is considering seeking other alternative suppliers in China Awal Company will select your bank to borrow in order to expand and buy plastic machines and equipment needed by their production line at least for next five years. The company's two most recent balance sheets were presented to you in support of their credit facility request. In addition, the company's income statement for the year just ended was provided to support the loan request. These statements are as follows 2013 Awal Company Balance Sheet as at 31/12/13 and 31/12/14 Assets 2014 Cash BD 14.000 BD Marketable Securities 6,200 Account Receivable 33,000 Inventory 84 000 Prepaid Rent 1. 100 Total Current Assets BD 138,300 BD Net Plant and Equipment 270.000 Total Assets BD 408,300 BD 15,000 6,000 42,000 51,000 1.200 115,200 286,000 401,200 2014 2013 BD BD Liabilities and Equity Accounts Payable Notes Payable Accruals Total Current Liabilities Bonds Total Liabilities Ordinary Shares Retained Earnings Total Equity Total Liabilities & Equity 57,000 13,000 5,000 75,000 150,000 225,000 100,000 83,300 183,300 408,300 BD 48,000 15,000 6,000 BD 69,000 160,000 229,000 100,000 72,200 BD 172,200 BD 401,200 BD BD 600,000 460,000 140,000 Awal Company Income statement for the year ended 31/12/14 Sales BD Cost of Goods Sold Gross Profit BD Operating and Interest Expenses General & Administrative BD 30,000 Interest 10,000 Depreciation 30,000 Total Operating and Interest Expenses Earnings Before Taxes BD Taxes Net Income BD 70,000 70,000 27.100 42,900 Other information that you have collected from the Bloomberg includes the industry ratios. The ratios are as follows: Current Ratio Quick Ratio Average Collection Period Inventory Turnover Total Asset Turnover Fixed Asset Turnover Industry Average 1.8 0.9 20.0 70 Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity Debt Ratio Industry Average 25% 14% 10% 6% 12% 50% 1.2 1.8 Assuming Awal Company's Ordinary Shares are currently valued at BD 165,000 based on equity expert. To conduct an initial assessment on the company, you decided to use the Z-score At this preliminary stage what is your credit decision and why? Write limitations of Z-score. (8 marks) (LOS A1 B1 C1)