The team assignment requires 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 When the loan to Bob was originally made in $2016,$ the bank required Bob to increase the YE $2016$ cash balance to at least $$70,000$ to qualify for the interest rate that the bank used for the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.$

The team assignment requires participation in a team effort to complete the $2017$ Cash Flow Statement. In addition, your team will also prepare $$Common Sized Financial Statements$$ for the $2$ years shown. In the Unit $1$ Seminar, you discussed how to complete and use the $2017$ Cash Flow Statement outcomes to explain how specific accounts influenced Bob$$s low cash balances; in other words, some reasons why Bob has no cash!

This information allows you to substantiate the $2018$ loan denial or renewal request. Your team is the bank's loan committee, 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. 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$$ What could be management$$s motivation for not complying with the loan$$s CC&Rs$?$

$$ What could management have done to comply with the CC&Rs they agreed to$?$

MT$80$ Unit $4$ Assignment $2$ 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 $$70,000$ in their DDA $($noninterest bearing checking$)$ at all times as compensating balances against their loan. $2.$ The company will maintain a current ratio of at least $2$:$1.3.$ The company will maintain a quick ratio of at least $1\mathrm{.}5$:$1.4.$ The company will not increase officer salaries by more than $5\%$ while the loan is outstanding. $5.$ The company will not pay bonuses to officers without the bank$$s explicit approval. Teams will consider compliance with the loan$$s CC&Rs as part of their loan approval process