You work for an organization that provides loans to businesses. You are working with a client who is requesting a loan that will require a review of financial and related performance documents. You have been asked to review the documents and summarize your findings in a loan recommendation for your management team.

You may apply this scenario to either Option $1$ or Option $2,$ described in Requirements below.

You are a loan manager for a lending organization, and your responsibilities include reviewing loan requests and providing recommendations in regard to whether the loan requests should be funded.

Option $1$:

Your client works for Ace Company. Assume Ace Company requested a $$3$ million $10-$year loan to purchase production equipment and develop accompanying software. Use the Ace Company Data document for this option.

Option $2$:

Use a firm or scenario of your choosing.

Before choosing a company, read the assessment thoroughly to ensure:

The company fits the assessment requirements.

You have access to the financial statements and related performance documents needed to assess risk and make a loan recommendation. You will need information for this year and last year.

You can distribute the financial statements and related performance documents without disclosing confidential company information.

Loan Recommendation

To arrive at your recommendation, analyze the financial performance of the requesting company and present it to your organization$$s upper$-$management team. The management team will take your recommendation into consideration as they finalize loan requests.

Analyze the company's performance and performance trends. Include the following in your analysis:

Analyze the trend for accounts receivable collections.

Identify the trend.

Explain the relevance of the trend.

Determine if the trend is improving or getting worse.

Compare the company's average inventory turnover to the industry average inventory turnover rate. Note that the average industry turnover rate for Ace Company is $10$ times per year.

Consider whether the company$$s average inventory turnover is higher or lower than the industry average.

Explain whether a higher or lower average is better.

Determine whether the trend is improving or getting worse.

Evaluate the company's short$-$term and long$-$term credit worthiness based on financial performance and trend $($comparing this year to last year$).$ Include in your evaluation:

Information about performance and trends.

Information about other relevant financial information you consider important to the decision.

Your recommendation regarding whether the bank should grant the loan based on the financial data.

Ace Company Data

The company$$s financial data is condensed from the financial statements of Ace Company. Both

the Income Statement and Balance Sheet tables are for $2022$ and $2021,$ ending December $31.$

$$ Inventory at December $31,2020,$ was $$4,950,000.$ Accounts Receivable at December $31,$

$2020,$ was $$4,100,000.$

$$ The market price of the common stock was $$120$ per share at December $31,2022,$ and $$95$ per

share at December $31,2021.$

$$ There were no changes in the number of shares of common stock during $2022,2021,2020.$

$$ There are no shares of preferred stock. There are no stock options, convertible debt, or other

possible sources of common stock.

$$ Cash dividends of $$1,200,000($$$2\mathrm{.}00$ per share$)$ were paid in both $2022$ and in $2021.$

$$ All sales are made on credit.

Note: All dollar amounts in tables are in thousands of dollars.

Ace Company Balance Sheet

Assets $20222021$

Cash $$3,750$ $$2,900$

Accounts receivable $4,5004,200$

Inventories $($FIFO$)6,5005,500$

Property, plant and equipment, net of $11,00010,200$

accumulated depreciation

Other long$-$term assets $2,0001,500$

TOTAL ASSETS $$27,750$ $$24,300$

Liabilities and Equity $20222021$

Current liabilities $$10,750$ $$7,500$

Long$-$term liabilities $11,50011,000$

Common stock, no par, $500,000$ shares $2,0002,000$

issued and outstanding

Retained earnings $4,8003,800$

TOTAL LIABILITIES AND EQUITY $$27,750$ $$24,300$