Question5

5. You are the credit manager of XYZ Bank. You have been provided with the following financial summary of a customer who enjoys credit facilities of US$18m. US$'000 FY2007 FY2008 FYE 2009 FY2010 25,967 1,823 2,770 1,228 8,830 8,219 Turnover Operating Profit EBITDA Profit before Tax Gross Debt Net Debt Intangibles Tangible Net Worth Capital and Reserves Free Cash flow CAPEX Gross (Net) Debt/TNW (%) Net Debt/EBITDA (x) Current Ratio (%) Quick Ratio (%) Operating Profit Margin (%) Interest Cover (x) External Debt Repayment Period(Years) 15,664 987 1,531 1,041 4.031 3,670 300 7,030 7,030 N/A 3,985 0.57 2.4 140% 136% 6.30% 6.37 NA 21,843 1,469 2,213 1,688 4,994 4,321 200 8,719 8,719 -1,154 547 0.57 1.95 162% 156% 6.72% 4.98 -4.3 22,085 2.441 3,158 2,030 7.963 7,034 100 10,748 10.748 1,092 1,826 0.74 2.16 130% 125% 11.05% 4.98 7.3 11,977 11,977 706 708 0.74 3.27 127% 124% 7.02% 2.62 12.5 Please provide your views on (i) profitability. (ii) capital structure and (iii) liquidity. It is evident that there is deterioration in net debt to EBITDA and interest coverage. Explain your views and clarify whether you would recommend reduction in existing credit facilities