Scenario: You are required to conduct an analysis of specific financial data of Bob Smith, Inc. Bob is an existing bank customer. When the loan to Bob was originally made in 2016, the bank required Bob to increase the YE 2016 cash balance to at least $70,000 to qualify for the interest rate that the bank used for the original loan. This cash balance was required for the bank to make its target yield on the loan created. The Cash Flow Statement and Balance Sheet show an actual YE 2017 cash balance of less than $34,000. You will need to complete the 2017 Cash Flow Statement. In addition, you will also prepare the "Common Sized Financial Statements" for the 2 years shown. This information allows you to substantiate the 2018 loan denial or renewal request. You are acting as the loan committee of the bank and you will address an internal memo to the loan officer in charge of this loan facility giving the committee's decision on whether to approve the loan as is, renew the loan with modifications, or deny the loan request. Be sure you move away from definitions to analysis. Additionally, you do not need to give definitions of balance sheet accounts. The Balance Sheets and Cash Flow Statements provided in the data worksheet below will assist you in your analysis. From these documents, and from the ones you produced, discuss the following: The operating cycle of the company The covenants within the CC&Rs that the company did not comply with. The Common Sized Financial Statement (CC&Rs) The Cash Flow Statement CC&Rs for Bob Smith, Inc.

During the original loan, the bank included, as part of the loan documentation, a document called Covenants, Conditions & Restrictions (CC&Rs), which the company had to comply with to maintain its credit facility with the bank. The major conditions of this included: 1. The company will maintain at least $70,000 in their DDA (noninterest bearing checking) at all times as compensating balances against their loan. 2. The company will maintain a current ratio of at least 2:1. 3. The company will maintain a quick ratio of at least 1.5:1. 4. The company will not increase officer salaries by more than 5% while the loan is outstanding. 5. The company will not pay bonuses to officers without the banks explicit approval. Teams will consider compliance with the loans CC&Rs as part of their loan approval process.

The question is determine which loan agreements the company kept and which ones they did not. In each case where they did not keep the agreement discuss what this means to the bank and this loan renew request