CBE- CREDIT UNIT NIFAS SILK DISTRICT

1. Basic Customer’s Information:

Borrower/Applicant: Meskerem Kidane Gudeta Date Business Established: 2011 E.C
Date Credit Relationship Started: New
Branch: Saris Abo Kelebet Branch
Business Address: Region: ---, City/Town: Addis Ababa, Nifas Total Applicant’s Credit Exposure: 3 million
Silk Lafto sub-city wereda, 06 Kebele --: H.No. 79/1 Sister Company/s Credit Exposure: N.A
Tel. No. +251911138762, P.O. Box. --, Fax No. --, E-mail: -- Credit Exposure Grand Total: 3 million
Customer Classification: Previous Credit Risk Grade: N.A
SME Current Credit Risk Grade:3
Corporate Risk grade of sister company(s): NA
Reason for change of Grade (in short): N.A

Ownership: Sole proprietor Collateral to the outstanding loan ratio: 279%

Business/Economic Sector: DTS Credit Facility Utilization: NA
Business type/Line: Cosmetics and Beauty Product Sales Policy Exception:
Trade License No. AA/NL/W06/14/666/773952/2011 Yes No
Date issued: 08/01/2011 E.C If Yes State Briefly:
Renewed for: 2015 E.C _________________________________________
Principal registration: AA/NL/W06/1/0006965/2011
TIN: 0025071567 PERFORMERS :
Financial Statement CRM : Henok Asefa
Provisional statement: 2021,2022 & 2023 A/CAO : Gedion Gebrehiwot
Interim: As of October,07/2023
Opinion: Unqualified Qualified Disclaimer Approving Team :
CAT –A CAT –B CAT –C

CAT –District
Items/ Period Value per 07.07.2022 07.07.2023
‘000 Date Application Received :
Contributed capital 50,000 50,000 By CRM : 07/05/2016 EC
Capital employed: 1,643,056.49 1,875,310.51 By CAO : 15/01/2024 @2 :00 local time
Tangible Net Worth: 1,693,056.49 1,925,310.51 Last document Received : 17/01/2024
Operating Profit Ratio: 22.58% 19.83% Case Complete on : 23/01/2024
Net Profit Ratio: 14.68% 12.89% Décision Date:
Current Ratio 1.88 1.98
Bank Debt/TNW ratio:
Total Liability/TNW ratio: 0.52 0.53
Net profit/loss: 1,643 1,875

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
2. Current Request
The applicant, Meskerem Kidane Gudeta, under her credit application letter dated 25/08/2023
E.C. and CAF filled on 18/12/2015 EC. has requested working capital term loan of birr 3,000,000 to
be repaid within 5 years on semiannually basis.16.
3. Purpose of the request
As per the loan request letter, the applicant is engaged retail tread of different kind of sanitary
ware and cosmetics products. Sales are generated from wide range of high quality cosmetics
products. As per her letter of request dated 25/08/2023, the purpose of the fund is to purchase
sanitary ware and high quality cosmetics products, and for hiring additional employee to increase
amount of sales volume. Therefore, the purpose of the request is to relief from shortage of
working capital for running the business activity smoothly at full capacity.

4. Collaterals
The requested term loan is secured against the residential building in the name of Ato Kidane
Gudeta Denboba with LHC No 582/3/7/30761/01 located in Addis Abeba , Nifas Silk Lafto, Woreda
07,House No 341 , Estimation Value Birr 5,149,339.63 .
Estimated

Descriptions & Owner of the By Bank

Evidenced by Estimation Net
property Engineer
Value. collateral
on
value
residential building in the name of
LHC:No
Ato Kidane Gudeta Denboba with 25/10/2023
582/3/7/30761/01 5,149339.63 5,149,339.63
LHC No 582/3/7/30761/01
Less engineer remark 390,691.28 390,691.28
Total 4,758,648.63 4,758,648.63
Source; LAF NO, NSD/HA/0128/23 dated 16/01/2024

Engineer remarks
 10.52 %(22.68 m2) of the compound area reserved for future rode expansion scheme
 27.27% of Building C is in the area of future read expansion
260,460.85*1.5= 390,691.28
 The lease agreement is not considered since it doesn’t provide clear information
 Building C reduced by 11.29%

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
Security Coverage Ratios:
Net Security Value to the requested term loan is
= 4,758,648.63/ 3,000,000=158%
Net Security Value to the recommended term loan
= 4,758,648.63/ 1,700,000.00 = 280% and the recommended term loan is sufficiently secured

5. Establishment, Management and owner of the business

5.1 Establishment and ownership
Ms. Meskerem Kidane Gudeta has started her business in retail trade of sanitary ware and
cosmetics business License Number AA/NL/W06/14/666/773952/2011 with Sole Proprietorship at
Nifas Sil Lafto Sub City Woreda 06 H.No 79/1 .The business was established in 2011E.C. with paid
up capital of Birr 50,000.00.
Business Premise of the customer is located at Mebrat Condominun infront of Venus commercial
Center The business shop is granted by rent for two years’ monthly birr 5,000.
5.2 Management Profile
As per the DDR of respective CRM dated 16/01/2024 the business is managed by Meskerem
Kidane Gudeta. She has more than 4 years’ experience in the same business. She also has Diploma
in marketing & sales.
6. OWNERSHIP AND BUSINESS LEGAL REQUIRMENT
 OWNERSHIP
The business was established on 08/01/2011E.C formed as sole proprietorship. As per DDR dated
16/01/2024 the business is owned and managed by Meskerm Kidane Gudeta. The owner and
general manager of the business retail of a wide range of high quality cosmetics product.
The applicant presents following documents;
 Renewed trade License.( when the loan Request is presented the license is Renewed but
now in the process of renewal it has expired)
 Tax payer’s registration certificate and Tax clearance certificate.
 Trade registration certificate.
 Non-Marital certificate.
 Power of attorney.
 Rent agreement with legal opinion.
 Saris Abo Kelebet branch confirmed that the applicant is not under mal operation list as
30/11/2023.
 Rent agreement, current land tax repayment receipt etc.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
 BUSINESS LEGAL REQUIRMENT;
Legal opinion
 Regarding the power of attorney, the legal opinion has been given dated 02/02/2016 E.C
with reference number ///0597/2023 & it is possible to entertain the request of
applicant since the power of attorney fulfils legal requirement.
 Regarding rent agreement; the legal opinion has been given dated 12/03/2016 E.C with
reference number ///0672/2023 & it is possible to entertain the request of
applicant since the power of attorney of the renter fulfils legal requirement.
7. KEY CUSTOMERS AND SUPPLIERS OF THE BUSINESS
The customer as per CAF dated 12/09/2023. Has not declared the any major customers and
suppliers of the business only engage in retail to any kind of customers.
S. no. Major Customers Major Suppliers
1 Various customers Various suppliers from Merkato & Dubai
Source: CAF
CREDIT EXPOSURE
The applicant Meskerem Kidane Gudeta as per NBE enquiry ID: 2093540 dated 22/12/2023 has not
a credit relationship with CBE.
Type of Amount/Limit Date Terms Outstanding Expiry Status
Loans/Facilities Approved Granted of balance as Date
Payment of
Term loan Nil Nil Nil Nil Nil
8.1 With the Other banks
The applicant Meskerem Kidane Gudeta as per NBE enquiry ID: 2093540 dated 22/12/2023 has a
credit relationship with other Banks as a spouse; but she provides us a non-marriage (single)
certificate document and also she wrote a justification about the relationship is only having a
child together.
Type of Amount/Limit Date Terms Outstanding Expiry Status
Loans/Facilities Approved Granted of balance as of Date
Payment 31/08/2023
1,300,000.00 30-11- 24 1,288,830.78 2025-12-
Term loan
2023 month 03

8. BORROWER’S ACCOUNT PERFORMANCE

9.1 Loan Account Performance:
Applicant is new to CBE and has not yet started credit relationship before.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
9.2 Deposit Performance
The customer as per CAF dated 16/01/2024. Does not have any major deposit performance with
the bank. the customer has no credit relationship with us, she doesn’t deposit but she promised to
channel the whole sales through CBE.
Period Sales Credit Ratio of sales
Turnover
7/7/2021 G.C 8,610,999.54 295,393.95 3%
7/7/2022 G.C 11,194,299.22 3,634,729.02 32%
2023 G.C 14,552,589.22 1,952,576.68 13%
Oct,30/2023 5,630,268.92 624,792.92 11%
Source: LAF NSD/HA/0128/23 dated 16/01/2024
From the above table we observe that the applicant’s sales turnover of three years’ average is 16 %.
9. FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is a judgmental process which aims to estimate current and past
financial positions and the results of the operation of a business, with primary objective of
determining the best possible estimates and predictions about the future conditions. As far as the
financial statements are concerned, the customer has submitted provisional financial statement of
2021,2022 and 2023. Interim financial statement as of 07/10/2023 is submitted.
Here are the most commonly used techniques of financial analysis: Trend and Ratio Analysis:
10.1 TREND ANALYSIS
Among the tools of Trend Analysis, the following are employed:
 FIXED ASSET
As it is noted from provisional financial statements, fixed asset of the applicant shows decrement
trend from year to year. The fixed asset & office equipment and computers and printers has the
highest share of the fixed asset in all accounting periods.

Period ended 07/072021 07/07/2022 07/07/2023 07/10/2023

Account status provisional provisional provisional Interim
Fixed Assets- Property 1,074,389 907,467 936,737 989,046
Other Fixed Assets
FIXED ASSETS 1,074,389 907,467 936,737 989,046
Source: Financial Analysis Spreadsheet

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
 CURRENT ASSET
The current assets of the business in the three full years’ statement are composed of cash and
receivables in which Stock and Work in Progress took the largest share from the three years’
trend.

07/072021 07/072022 07/07/2023 07/10/2023

Cash and Bank Accounts 303,512 345,093 348,743 88,074

Stock and Work in Progress 688,142 675,304 816,442 133,540

Trade Debtors/Receivables 526,220 653,919 838,177 132,511
Other Debtors and Prepayments
Total current asset 378,811 848,568 1,817,550 354,125
Source: Financial Analysis Spreadsheet
 CURRENT LIABILITY
The current liabilities of the business in the three full years are showing increasing trend which is
composed of current tax only in the reviewed years.

07/072021 07/072022 07/07/2023 07/10/2023

Bank Short Term Debt

Bank Long Term Debt (Current Portion)

Trade Creditors
Current Taxes 898,874.51 888,727.95 1,014,789.11 196,154.45
Shareholder/owner Accounts
Total current liability 891,874.51 888,727.95 1,014,789.11 196,154.45
Source: Financial Analysis Spreadsheet
 SALES
Sales are generated from selling various types of cosmetics on daily basis. From three years’
provisional data the company’s sales trend from the year 2021 to 2023 shows increment from year
to year.

PERIOD ENDED 07/072021 07/072022 07/07/2023 07/10/2023

Net Sales 8,610,999 11,194,299 14,552,589 5,630,268
Sales growth 30.00% 30.01%
Source: Financial Analysis Spreadsheet
As it is shown from the table, the sales growth of 2022 & 2023 increased by 30% respectively from
cosmetics retail business.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
10.2 RATIO ANALYSIS
Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational
efficiency, and profitability by studying its financial statements such as the balance sheet and
income statement.
 Liquidity Ratio
Liquidity ratios are financial ratios that measure a company’s ability to repay its obligations. The
liquidity ratio is used to determine the firm’s ability to pay its obligation without raising external
capital.
Period 3 years average
07/072021 07/072022 07/07/2023
Current Ratio
1.70 1.89 1.98 1.86
Quick Asset Ratio
0.93 1.13 1.17 1.08
Source: Financial Analysis Spreadsheet
 Current Ratio
The current ratio measures a company’s ability to pay off short-term liabilities with current assets.
As it can be seen from above table, the average current liquidity ratio in the last three years is 1.86.
However, the current ratio for DTS above 1.75 - 2.5 is rated as Very Good & the businesses current
ratio is 1.86 & implies that, the business is in a Very Good position to discharge its short term
obligation (current liabilities) from current asset without it sales non-current assets. This implies
the company will have enough cash or other liquid assets to cover its immediate liabilities. so, the
business is lower risk of falling if suddenly faced with unexpected debt.
 Quick Asset Ratio
Quick Asset ratio measures a company’s ability to pay off short –term liabilities with quick assets.
As it can be seen from above table, the average quick asset liquidity ratio in the last three years is
1.08 to 1 known standard of quick asset ratio is (1:1).
 Leverage Ratio
The term 'leverage ratio' refers to a set of ratios that highlight a business's financial leverage in
terms of its assets, liabilities, and equity. It is used to assess the company’s long term solvency by
analyzing the proportion of the company’s equity and debt financing.
Leverage Ratio is any one of several financial measurements that look at what much capital comes
in the form of debt (loan) or assesses the ability of a company to meet its financial obligations.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
Period 3 Yrs. average
07/072021 07/07/2022 07/07/2023
Tangible Net Worth
1,700,388 1,693,056 1,925,311
Total Liabilities /Tangible Net Worth
0.52 0.52 0.53 0.52
Bank Debt/Tangible Net Worth
Source: Financial Analysis Spreadsheet
A gearing ratio between 51% and 125% is typically considered optimal or normal (no more than
half of the company’s asset should be financed by debt). As it is shown from the above table, three
years’ average is 0.52 and hence the business is not geared. The business has a higher proportion
of equity versus debt. For DTS leverage ratio 0.51_1.25 is very good, and the business leverage ratio
is in good condition, which means the customer’s debt is low; or the business has a higher
proportion of equity versus debt
10. Profitability Ratio
Profitability ratio measures a company’s profit relative to its expenses
period 3Yrs. average
07/072021 07/07/2022 07/07/2023
Net Sales Growth Rate (%) 30.00%
30.04% 30.01%
Gross Profit Margin (%) 34.17%
37.57% 37.56% 27.38%
Operating Profit Margin (%) 23.97%
29.50% 22.58% 19.83%
Net Profit Margin (%) 15.18%
19.17% 14.68% 12.89%
Source: Financial Analysis Spreadsheet
A good margin varies from industry and size of business. As per our credit business procedure,
DTS business operating profit margin > 6 is excellent and applicants operating profit ratio is 23.97
%. So, the business profitability is excellent as it is shown on the above table.
 Turnover Ratio
A turnover ratio represents the amount of assets or liabilities that a company replaces in relation
to its sales. The Asset turnover ratio measures the efficiency of a company’s assets in generating
revenue or sales (how efficiently a company is using its assets). A higher ratio is favored because it
implies that the company is efficient in generating sales or revenues from its asset. A lower ratio
indicates that a company is not using its assets efficiently and may have internal problem.
PERIOD ENDED Average
07/072021 07/07/2022 07/07/2023
Sales to Asset Ratio 4.2
3.3 4.3 5.0
Sales to Fixed Asset Ratio 12
8.0 12.3 15.5

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
Sales to Asset Ratio: how efficiently a company is using its assets: commonly 2.
From the above table three years’ average is 4.2 which are more than the bench mark which
implies the applicant extensive use of her asset; it implies that the company is efficient in
generating sales or revenues from its asset.
Sales to Fixed Asset Ratio: how efficient a company is at generating sales from its existing fixed
assets. The standard is five. When sales to fixed ratio is below 5 the business underutilizing and if
above 5 it is overtrading. Here, as we have seen from the above table the applicant overtrading the
fixed assets by the ratio of 12.
 ACTIVITY RATIO (OPERATIONAL EFFICIENCY)
Activity ratios measure the efficiency of a business in using and managing its resources to
generate maximum possible revenue. The different types of activity ratios show the business'
ability to convert different accounts within the balance sheet such as capital and assets into cash
or sale. The following activity ratio can be assessed using the company stock turn over, debtor’s
turnover, creditors turnover and overall working capital cycle in days of business based on the
spread sheet of financial analysis. The following table shows the trend of activity ratios:
Working capital Mgt. 3 Years average
07/072021 07/07/2022 07/07/2023
Stock Turnover (Days) 37
47 35 28
Debtors Turnover (Days)
22 21 21 22
Creditors Turnover (Days)
Working Capital Cycle (Days)
69 57 49 58

Source: Financial Analysis Spreadsheet

 Stock turnover days
Inventory turnover measures how often a business replaces inventory relative to its cost of sales.
It indicates how many days the firm averagely needs to turn its inventory into sales. Many experts
agree that good days of inventory can vary based on the product but on average between 30 and
60 days is acceptable. Generally, a lower inventory-holding period indicates good efficiency since
it indicates that less time is required for the stock to be realized as sales income so the average
days needs to convert inventory to cash 37 which is implies that a good management of stocks.
 Debtors collection period
This is calculated as account receivable divided by annual credit sale multiplied by 365-days. A
shorter average collection period (60 days or less) is generally preferable and means a business
has higher liquidity. The average collection period of the firm in the last three years’ ranges from
Annex to LAF No. NSD/HA/0128/23 Meskerem Kidane Jan,2024 9
 CBE- CREDIT UNIT NIFAS SILK DISTRICT
21 days to 22 days, & on average 22 days, which implies that the firm took 22 days to collect the
outstanding receivables. The applicant collects payments faster & this indicates the effectiveness
of applicant’s receivable management practices to ensure enough cash on hand to meet its
financial obligations.
 Creditors payable period
The customer has no credit payable but in general, the creditor payment period measures the
average time it takes the company to pay its creditors. This is performance ratio which indicated
efficiency of the business. A good creditor ratio shouldn’t be too high or too low. If it is very high,
it means the company is waiting while to repay its debts which may damage relationships with
suppliers and even results termination of supplies in the future. A business is generally seen as
having good credit rating if it can pay debts within 30 -60 days.
 Working Capital Cycle (Days)
Days working capital describes how many days it takes for the company to convert its working
capital into revenue. Companies that take fewer days to turn working capital into ales revenue are
more efficient than companies that take more days to generate the same amount of revenue. If
day’s working capital number is decreasing it might be due to an increase in sales. Conversely, if
the day of working capital is high or increasing, it could mean that sales are decreasing or perhaps
the business is taking longer to collect payments for its payables.
From the above table, the business takes on average 58 days to convert its working capital into
revenue. This implies the business will gate revenue 6.2 times per year and hence average time is
required for the business to get a good cash flow.
11. RISK ANALYSIS
Risk analysis is the process of identifying and analyzing potential issues that could negatively
impact key business initiatives or projects. Risk analysis involves examining how business
outcomes and objectives might change due to the impact of the risk event. There are different
types of risks in the business however we focus on the following risks.
 Management Risk
As per the listed management profile on DDR of the CRM dated 03/01/2024 Meskerem Kidane
Gudeta is engaged a sanitary ware and cosmetics sale which is formed as Sole Proprietorship and
the business owned by Meskerm Kidane Gudeta who has 5 years of experience and sales and
Marketing Diploma. From its very nature of the business which formed as a sole proprietor, it
may face problem of business continuity and succession. However, family members are

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
participating in the business willingly. Thus, in this regard the anticipated management or
ownership risk is moderate.
 Business Risk
Sanitary ware and cosmetics product Demand is growing in Ethiopian. In many cities of the
country, growing health consciousness and awareness of the harmful effects bad chemicals used
in beauty and personal care products has driven the demand for products containing natural
ingredients. Africa consumers want low chemical products because of this Cosmo Market players
are focusing on producing beauty and personal care by those fact and market trend the Business
Risk of the firm is moderate.
Mitigating mechanisms
 The business owner shall improve his quality of product.
 Obey rules and regulations as per the agreement.
 Additional working hours might be required to increase sales.
 Building the capacity for higher market share.
 Diversifying income sources.
 Financial Risk
Comparing the ability to generate cash with the need for cash, including its use in repaying
obligations, is the most critical component of financial risk analysis. The applicant has presented
Provisional financial statements for the year 2021, 2022 & 2023 and interim period financial
statement. The financial performance of the business is satisfactory in terms of profitability &
leverage ratio and it has a moderate Risk Because we cannot depend on provisional financial
statement.
Collateral Risk
The collateral offered is residential building in the name of Ato Kidane Gudeta Denboba with
LHC No 582/3/7/30761/01 located in Addis Abeba, Nifas Silk Lafto, Woreda 07, House No 341,
Estimation Value less 27.27% building area is Birr 4,758,648.63. Therefore, it can be concluded
that the offered collateral is insurable, transferable to third body, easily convertible in to cash and
appreciated over time. Moreover, the collateral adequately covers the recommended term loan
and hence, associated collateral risk is minimal.
12. CURRENT REQUEST ASSESSMENT
The customer, Meskerem Kidane Gudeta in her application letter dated 18/12/2015 E.C and CAF
filled on same date requested fresh Term loan of birr 3,000,000 to be paid within 5 years on

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
quarterly instalments secured against the offered collateral in the name of the guarantor Kidane
Gudeta Denboba. The applicant business revenue is from retail business on sanitary ware and
cosmetics product. The main goal providing customer oriented sales service with integrity,
accountability, clarity and prompt retail service in order to have sustainable business growth.
The reason behind additional working capital request is due to difficulty of the applicant to work
with full capacity because of shortage of working capital which is used for building a business that
will strive on its own cash flow without the need for another capital injection from external source
ones the business officially running, the applicant brought business plan to show future operative
and financial forecast of the business.
Business plan
The applicant presented a business plan which shows her business future main operations and
financial forecasts for sanitary ware and cosmetics business.
Sales Revenues
As per presented business plan, the applicant planned to sale 18,190,736 in the first year the total
sales revenues of the business during the plan periods are depicted in the table below.

Projected Years
Description
1 2 3
Annual Revenues 18,190,736 24,698,008 29,637,610
Source: business plan.

13. WORKING CAPITAL DETERMINATION

There is no specific way in which working capital should be financed. In general Investment in
current asset is realized during the firms operating cycle which is usually less than a year.
Different methods are used to determine the working capital requirement of business, for this
case we consider the cost of goods method and based on presented business plan.
 THE COST OF GOODS SOLD METHOD
The following data available from previous 3 years’ financial statements.

PERIOD ENDED 07/072021 07/07/2022 07/07/2023 3Yrs. average

PERIOD LENGTH (DAYS) 365 365 365
Net Sales 8,611 11,194 14,553
Cost Of Goods Sold 5,376 6,989 10,568
CGS Ratio 60.1% 60.1% 72.1% 64.14%
Sales growth rate 30.00% 30.01% 30.00%
Source: Financial Analysis Spreadsheet

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
Scenario I: Based on historical sales performance (CGS method)
Assumptions;
 The sales growth rate in the three years 30.00% and we take this growth rate to forecast
next year sales based on 2023 sales (base year). The actual base year (2023) sales for the
year ended on 07 July, 2023 was Birr 14,552,589
 The forecasted sale for next year will be 14,552,589.22 *1.300= Birr 18,918,366
 Since the working cycle days from actual is 58 days, the working capital cycle of the
business is 6.26 (365/58)
 Average cost of goods sold ratio is 64%.
 Net current asset of the business as per the recent Interim financial statement is Birr
157,970.31
Scenario II: Based on customer business plan

 A forecasted sale of the business plan is = 18,190,737

 Average cost of goods sold ratio from historical sales is 64%
Scenario I Scenario II
A. Forecasted sales
18,918,366.00 18,190,737.00
B Cost of goods sold (64%)
12,107,754.05 11,642,072.00
C. Average working capital cycle
6.26 6.26
D. Net working capital requirement per one cycle (B/C)
1,934,146.01 1,859,755.91
E. Net current asset (Interim FS)
157,970.31 157,970.31
F Available unutilized facility
0 0
G. Net Working capital requirement (D-(F+E))
1,776,175.70 1,701,785.60
 Working capital determination under Scenario I show that the business requires birr
1,776,175.70 additional finance.

 Working capital determination under Scenario II shows that the business requires birr
1,701,785.60 additional finance.

Concluding Remarks
Based on the facts stated in the above two scenarios the applicant’s working capital requirement
determination in the actual business performance, the business requires 1,776,175.70 additional
working capital and in the business plan case it requires 1,701,785.60. Here, I prefer to stick to
some logical justifications.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
 The customer requests birr 3,000,000 to be repaid within 5 years on quarterly instalments.
 The Net value of the offered collateral is birr 4,758,648.63
 Since the customer is new, the risk grade is 3.
Moreover, the offered collateral Net Value is 4,758,648.63 birr. Due to these facts, the under
writer recommends 1,700,000.00 birr (280 % of the collateral value even if customer is new and
credit worthiness is not attested yet) to be repaid within 3 years on quarterly instalments against
the offered collateral.

Projected profit and loss & Cash flow statement

 Projected Profit and Loss statement for 3 years
The projected profit and loss statement is computed based on the following assumptions.
 Forecasted revenue for 2016 E.C based base years’ sales is birr 18,918,366
 Interest rate of recommended loan is incorporated.
 Admin and operating expense is calculated based on trend against sales of the previous
years. The average admin expense against sales for the last two years is 9.0%
 Depreciation assumed to be constant which is 213,431
Forecasted Profit and Loss statement of the business
Item Years
I 2 3
Revenue 18,918,366.00 24,593,875.80 31,972,038.54
Cost of sale 12,107,754.24 15,740,080.51 20,462,104.67
Gross Profit 6,810,611.76 8,853,795.29 11,509,933.87
Less : Depreciation -213,431.00 -213,431.00 -213,431.00
Less : Interest expenses -438,318.49 -290,005.58 -115,499.05
Less: Operating Expense -142,745.13 -142,745.13 -142,745.13
Operating Income 6,016,117.14 8,207,613.58 11,038,258.69
Tax 2,087,641.00 2,872,664.75 3,863,390.54
Net Income after tax 3,928,476.14 5,334,948.83 7,174,868.15
Source: own computation from business plan

As it is shown in the table above, the business will generate net income after tax birr
3,928,476.14, 5,334,948.83and 7,174,868.15 in the next three years.

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
Forecasted cash flow of the business
Item Years
I 2 3
Beginning balance 1,788,073.00 667,137.55 1,388,947.22
Net Income after tax 3,928,476.14 5,334,948.83 7,174,868.15
Add Depreciation 213,431.00 213,431.00 213,431.00
Sub total 5,929,980.14 6,215,517.38 8,777,246.37
Less: principal repayment -839,818.08 -988,131.00 -1,154,782.94
End cash balance 5,090,162.06 5,227,386.38 7,622,463.44
As it is depicted from the above table, the forecasted cash flow for the next 3 years portrays that
the applicant business will have a capacity to repay the loan within 3 years.

14. SWOT ANALYSIS

Strength /Opportunity
 The business is running profitably
 The applicant has five years of experience in the business;
 The cash flow projection and the income statement shows the applicant will be
profitable and generate positive cash flow.
Weakness/Threats
 The business is sole proprietor it may face the issue of successor and business continuity.
 Higher competition from the same business.
 The customer is new and its credit worthiness is not yet attested.
15. Exception: NA
16. Condition:
i. As per memo dated 14.11.2023, portion of the recommended loan should be
credited to suppliers account.
ii. Trade license should be renewed
17. BASIS OF RECOMMENDATION
 The business requires additional working capital.
 Profitable business.
 Good working capital management.
 Adequate collateral coverage

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 CBE- CREDIT UNIT NIFAS SILK DISTRICT
 The cash flow projection and the income statement shows the applicant will be profitable
and generate positive cash flow
 For referral marketing from the same business.
18. RECOMMENDATION
Based on the above analysis, I hereby recommend a fresh working capital term loan of birr
1,700,000 Birr to be repaid within three years on quarterly bases of repayment against the offered
collateral.
Advice to CRM
 The CRM should follow up her deposit performance & end use of fund.

____________________
Gedion Gebrehiwot
Credit Appraisal Officer
January, 2024

Annex to LAF No. NSD/HA/0128/23 Meskerem Kidane Jan,2024 16