Shimingken

Trading Co.
Case Study
Submitted to:
Ms. Ma Cristina Perlas
Submitted by:
Godzel Aubrey T. Quibranza
Julia Mae A. Albano
Daisy May E. Castro
Erica Marie Miclat
ABM 12- KRYPTON
Case Background

Shimingken Trading Co. is a clothing shop that manufactures summer clothes and is owned
by Ms. Tine. One day, they were in the loading bay to deliver the packed clothes but they
noticed that the delivery trucks took so long. After hearing that the delivery service of the
contractor was unpaid, Ms. Tine looked into taking a loan from Quezon Rural Bank to pay for
the delinquent fees. In order to prove that the company will be liquid enough to pay for its
loans with Quezon Rural Bank so that it will be allowed to ask for another loan to meet the
delivery contactor’s fee, she should explain to the bank that the company is in a good financial
position. Moreover, the company should think of ways on how to deal or cope with their need
for cash to prove to have financial liquidity problems.

Methodology

Shimingken Trading Co. prepared a cash budget because it let them established the
amount of credit that it can extend to customers without having problems with liquidity. It
helped them avoid a shortage of cash during they encountered the problem with the unpaid
delivery service fee. The company weren't able to pay the expenses due to cash shortage, so
they resolved the issues immediately by getting approval for a larger loan from Quezon Rural
Bank. Projected Financial Statements were also made to reflect present financial information
that can be translated to present future information and to review possible outcomes before
making a decision.

Budgets and Projections

January February March April May

Cash Receipt from 2,212,016 1,821,337 2,909,246 5,386,703
collection 1,956,922
Less: Purchase of Raw 1,985,504 4,428,460 9,616,078 8,577,092
material 7,591,641
Less: Payment of salaries 456, 667 675,071 2,581,158 3,269,466
and Wages 1,505,676
 49,005 73,262 241,552 414,090
Less: Payment of Delivery
and Contractors 108,300

Less: Dividends Pay 450,000

1,321,900 363,835
Less: Income Tax Paid

(10,851,442) (7,237,780)
NET CASH FLOW (279,161) (3,355,456) (7,698,696)

Add:Beginning Cash 641,123 640,000 640,000 640,000 640,000

Less: Required Ending
Balance (640,000) (640,000) (640,000) (640,000) (640,000)
Add: Return on
Investment(12%)
Less: Interest on
Borrowing (16%) (7,834.33) (11,645.96) (56,540.65) (159,943.81) (306,762.29)
Less:Repayment of
Principal
Add: Liquidation of
Investment

Required Financing (285,872) (3,367,102) (7,755,237) (11,011,386) (7,544,542)

Excess Cash
 TOTAL
June July August September October November December

10,352,241 15,275,302 83,230,361

16,728,152 12, 497,893 6,481,213 4,158,593 3,450,745

4,318,964 2,433,221 46,689,754

2,068,234 1,642,424 1,338,267 1,078,102 1,611,768

2,916,211 1,468,448 15,783,183

827,295 703,199 558,424 455,011 366,555

524,513 467,841 2,522,261

235,580 132,721 112,813 89,587 72,996

450,000 1,800,000
450,000 450,000

4,867,453
1,862,285 1,319,433

(2,142,552) 10,905,792 11,567,710

11,734,758 9,569,548 4,471,709 1,216,460 949,426

641,123
640,000 640,000 640,000 640,000 640,000 640,000 640,000

(640,000)
(640,000) (640,000) (640,000) (640,000) (640,000) (640,000) (640,000)

183,092
26,747 71,732 84,614

(1,668,958)
(407,356.18) (384,220.24) (243,932.63) (90,721.62)

(587,575)
(1,735,195) (10,521,571) (11,490,826) (6,804,121)

9,495,393
2,674,705 4,498,456 1,288,192 1,034,040
 Income Statement Computation
Gross Sales 84,075,350
Cost of goods 84,075,350 x 73.70% 61,963,533
Gross Profit 22,111,817
Delivery Fees 84,075,350 x 3.00% 2,522,260.50
Operating Expenses 84,075,350 x 6.00% 5,044,521
Depreciation 9,896,000 x 10.00% 989,600
Interest Expense Return Investment + Interest on borrowings 1,485,866
Pretax Profit 12,069,570
Income Tax 22,111,817 x(1-40%) x 30% 3,980,127
Net Profit 8,089,443

Balance Sheet
Cash Ending balance of cash budget 640,000
Accounts Receivable 3,279,958 + 84,075,350- 83,230,361 4,224,948
Inventories Same as last year 1,076,000
Short Term Investment From cash budget 9,495,393

Total Current Assets 15,436,340

Gross PPE 8,696,000 + 1,200,000 9,896,000

Accumulated
1,278,500 + 989,600
Depreciation 2,268,100
Net PPE 7,627,900
Total Assets 23,064,240

654,234 +61,963,533 +5,044,521 - 46, 689,

Accounts Payable
754 - 15,783,183 5,189,351
Short Term Borrowings
Payable to PPE Supplier Cost to be paid for purchase equipment 1,200,000
Accrued Taxes 7,179,863x (1-73.7%) x (1-40%) x 30% 434,575
Total Current Liabilities 6,823,926

Owners Equity 9,950,872 + 8,089,443 - 1,800,000 16,240,315

 Total Liabilitities and
Equity 23,064,240

Conclusion

The company will not be sustainable because of its too much debt it is a bad thing because
it hinders the capacity of a company to produce cash surplus. In addition, high levels of debt can
affect ordinary equity holders who have ultimately claimed payback from an insolvent company.
February 21,2020

To whom it may concern,

Re: Shimingken Trading Co. Loan Application

I am aware that Shimingken Trading Co. has applied for a loan of Php 30,000,000 through Quezon
Rural Bank. The repayments on this loan require monthly instalments of Php 937,500 ,over a 32
- month/year loan term at a variable interest rate of 16% per annum.

Based on my knowledge of Ms. Tine’s income and expenses, I deem her capable of being able to
afford this loan and believe that she is in a strong financial position to make her loan repayments
on time.

To the best of my knowledge, there are no significant factors that would hamper her ability to
service this loan.

I can confirm that Ms. Tine is a Filipino taxpayer and is registered with the Bureau of Internal
Revenue (BIR). I can also confirm that I submitted her most recent tax return to the BIR for
assessment.

Should you require any further information, please do not hesitate to contact me on (02) 8371-
7995.

Kind regards,

Mr. John, Accountant